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Exam 1: Business Income, Deductions, and Accounting Methods

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Question 71

Multiple Choice

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Ed is a self-employed heart surgeon wholives in Michigan and has incurred the following reasonable expenses. How much can Ed deduct? $1,340 in airfare to repair investment rental property in Colorado. $650 in meals while attending a medical convention in New York. $375 for tuition for an investment seminar, "How to pick stocks." $142 for tickets to a football game with hospital administrators to celebrate successful negotiation of a surgical contract earlier in the day. The correct answer is _____.

A) $1,665 "for AGI"
B) $1,715 "for AGI" and $396 "from AGI"
C) $576 "for AGI"
D) $122 "for AGI" and $1,715 "from AGI"
E) None of the choices are correct.

F) A) and B)
G) None of the above

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Question 72

Multiple Choice

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Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

A) Spouse when the taxpayer is an individual.
B) A partner when the taxpayer is a partnership.
C) Brother when the taxpayer is an individual.
D) A minority shareholder when the taxpayer is a corporation.
E) All of these are related parties.

F) A) and B)
G) B) and D)

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Question 73

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Smith operates a roof repair business. This year, Smith's business generated cash receipts of $33,610, and Smith made the following expenditures associated with his business: The education expense was for a two-week, nighttime course in business management. Smith believes the expenditure should qualify as an ordinary and necessary business expense. What net income should Smith report from his business? Smith is on the cash method and calendar year.

Otto operates a bakery and is on the cash method and calendar year. This year, one of Otto's ovens caught fire and was partially destroyed. Otto bought it a few years ago for $25,500 and claimed depreciation of $13,100 up to the fire. Otto was charged $3,850 for repairs to the oven but the insurance company paid Otto $1,775 for the damage. What is Otto's casualty loss deduction?

Colbert operates a catering service on the accrual method. In November of year 1, Colbert received a payment of $9,000 for 18 months of catering services to be rendered from December 1 ^st of year 1 through May 31 ^stof year 3. When must Colbert recognize the income if his accounting methods are selected to minimize income recognition?

The phrase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

Adjusted taxable income for calculating the business interest limitation is defined as taxable income of the taxpayer computed without regard to any item of income, gain, deduction, or loss that is not properly allocable to a trade or business.

In order to deduct a portion of the cost of a business meal, which of the following conditions must be met?

Holly took a prospective client to dinner, and after agreeing to a business deal, they went to the theater. Holly paid $290 for the meal andseparately paid $250 for the theater tickets, amounts that were reasonable under the circumstances. What amount of these expenditures can Holly deduct as a business expense?