QUESTION 1
A tax professional must understand the relative weight of authority within the various tax law sources
- True
- False

QUESTION 2
The Internal Revenue Code was codified for the first time in what year?Hint: Review Lecture Slides
- 1913.
- 1923.
- 1939.
- 1954.
- 1986

QUESTION 3
Which of the following is an acceptable method of accounting under the tax law?
- The accrual method
- The cash method
- The hybrid method
- All of the above are acceptable
- None of the above

QUESTION 4
The hybrid method of accounting involves the use of both the accrual and cash methods of accounting.
- True
- False

QUESTION 5
A cash based business is taxed on income when:Hint: Review IRS Pub 538 p 8.
- The invoice is issued / customer is billed, invoice remains uncollected.
- The product is delivered and the invoice is issued, but remains uncollected.
- When income is collected.
- It is at the choosing of the business owner.

QUESTION 6
An accrual based taxpayer recognizes taxable income in the year the income is earned, unless the related receivable remains uncolleted at the end of the year.
- True
- False

QUESTION 7
Abby, an accrual basis taxpayer, collects the rent for December 2008 and January2009 on December 1, 2008. Abby must include the December 2008 rent and the January 2009 rent in her 2008 gross income because she received the cash in 2008.
- True
- False

QUESTION 8
Kate is an accrual basis, calendar-year taxpayer. On November 1, 2008, Kate leased out a building for $4,000 a month. On that day Kate received six months rental income on the building, a total of $24,000 ($4,000 6 months). How much income must Kate include on her 2008 tax return as a result of this transaction?
- $4,000
- $8,000
- $16,000
- $24,000
- None of the above

QUESTION 9
Expenses of cash basis taxpayers are deductible at the time they are incurred not when they are actually paid.
- True
- False

QUESTION 10
For an expense to be deducted as ordinary, it must also be recurring in nature.(Hint: review lecture for rule on what is a business expense)
- True
- False

QUESTION 11
Match the expense with the proper classification
Prepaid Rent
Prepaid Interest
Meal & Entertainment directly related to business
Bribes to political officials
Life insurance paid for key man
Employee salaries and annual bonuses actually paid
$500 cash gift to Customer
Gift Certificate to Employee forone coffee (nominal value)
Salary paid to family membe rworking at the business
Bad debt incurred by a cash basis taxpayer

A. 50% Deductible
B. Not deductible.
C. Deductible in Year expense is allocable - not necessarily it is paid.
D. Fully Deductible

QUESTION 12
Payments that violate public policy are generally not deductible.
- True
- False

QUESTION 13
Becky is a cash basis taxpayer with the following transactions during her calendar tax year:
Cash basis revenue $54,000
Cash basis expenses, except rent    25,000
Rent expense (paid on December 1) for use of a building for sixmonths 12,000

What is the amount of Becky's taxable income from her business for this taxyear? Taxable Income = Gross Revenue less deductible Expenses
- $17,000
- $23,000
- $25,000
- $27,000
- None of above

QUESTION 14
Business ABC and Vendor XYZ are calendar year taxpayers. In December 2007,Vendor XYZ did some work for Business ABC. The vendor provided Business ABCwith a bill in December 2007. Business ABC did not pay Vendor XYZ's bill and eventually went bankrupt in late 2008. Assume Business XYZ is a Cash basis taxpayer. In what year can XYZ take a bad debt deduction on its tax return due to the loss it took on the bill to ABC?
- XYZ may not take such a deduction.
- 2009
- 2008
- XYZ must amend its 2007 tax return

QUESTION 15
Business ABC is a calendar year taxpayer. In December 2007, Vendor XYZ did some work for Business ABC. The vendor provided Business ABC with a bill in December 2007. Business ABC did not pay Vendor XYZ's bill until January 2008. Assume Business ABC is an accrual basis taxpayer. In what year does ABC deduct the payment it made to XYZ?
- 2009
- 2008
- 2007
- ABC cannot take this deduction.

QUESTION 16
The amount of the addition to the reserve for bad debts for an accrual method taxpayer is allowed as a deduction for tax purposes.
- True
- False

QUESTION 17
Clark operates a gambling operation, which is an illegal business under the laws of Texas. Therefore, none of the expenses of the business are deductible.
- True
- False

QUESTION 18
Which of the following is not a “trade or business” expense?
- Interest on business indebtedness.
- Property taxes on business property.
- Parking ticket paid on business auto.
- Depreciation on business property.
- All of the above are “trade or business” expenses.

QUESTION 19
Which of the following is deductible as a trade or business expense?
- A contribution to the presidents’s reelection campaign fund.
- Illegal bribes and kickbacks.
- Parking Tickets
- Fines and penalties.
- None of the above

QUESTION 20
Hollis operates a lawn care service in southeastern Missouri. He incurs $63,000of expenses determining the feasibility of expanding the business to southwestern Missouri. If he expands the business, the $63,000 is deductible in the current year. If he does not do so, then he must amortize the $63,000 over a180-month period.
- True
- False

QUESTION 21
If a taxpayer is not already engaged in the same trade or business, the full cost of investigating the purchase of a business cannot be immediately deducted in the current year even if the business is acquired - amortization limits may apply.
- True
- False

QUESTION 22
Trump Corporation, a real estate broker, had the following income and expenses:
Commissions income    $100,000
Expenses:
Commissions paid to non-brokers for referrals (illegal under state law and subject to criminal penalties) 20,000
Commissions paid to other real estate brokers for referrals (not illegal under state law) 10,000
Travel and transportation    12,000
Supplies    4,000
Office and phone    5,000
Parking tickets       500
How much net income must Trump Corporation report from this business?
- $48,500.
- $49,000.
- $60,000.
- $68,500.
- $69,000

QUESTION 1 A tax professional must understand the relative weight...