Reference no: EM132332450

Question No. 1

Michelle operates a food truck. Indicate the amount (if any) that she can deduct as an ordinary and necessary business deduction in each of the following situations.

a. Michelle moves her food truck between various locations on a daily rotation. Last week, Michelle was stopped for speeding. She paid a fine of $250 for speeding, including $205 for legal advice in connection with the ticket.

Deductible amount ------------------------?

b. Michelle paid $875 to reserve a parking place for her food truck for the fall football season outside the local football arena. Michelle also paid $220 for tickets to a game for her children.

Deductible amount-------------------------?

c. Michelle provided a candidate with free advertising painted on her truck during the candidate's campaign for city council. Michelle paid $1,000 to have the ad prepared and an additional $700 to have the ad removed from the truck after the candidate lost the election.

Deductible amount ------------------------?

Question No. 2

Indicate the amount (if any) that Josh can deduct as an ordinary and necessary business deduction in each of the following situations. (Leave no answers blank. Enter zero if applicable.)

a. Josh borrowed $64,000 from the First State Bank using his business assets as collateral. He used the money to buy City of Blanksville bonds. Over the course of a year, Josh paid interest of $10,900 on the borrowed funds, but he received $8,300 of interest on the bonds.

Deductible amount -----------------------------?

b. Josh purchased a piece of land for $82,000 in order to get a location to expand his business. He also paid $6,100 to construct a new driveway for access to the property.

Deductible amount -------------------------?
c. This year Josh paid $19,200 to employ the mayor's son in the business. Josh would typically pay an employee with these responsibilities about $17,000 but the mayor assured Josh that after his son was hired, some city business would be coming his way.

Deductible amount -----------------------?

d. Josh paid his brother, a mechanic, $4,950 to install a robotic machine for Josh's business. The amount he paid to his brother is comparable to what he would have paid to an unrelated party to do the same work. Once the installation was completed by his brother, Josh began calibrating the machine for operation. However, by the end of the year, he had not started using the machine in his business.

Deductible amount --------------------?

Question No. 3

Ralph invited a potential client to dinner and the theater. Ralph paid $310 for the dinner and $280 for the theater tickets in advance. They first went to dinner and then they went to the theater. (Leave no answers blank. Enter zero if applicable.)

a. What amount can Ralph deduct if, prior to the dinner, he met with the potential client to discuss future business prospects?

Deductible amount -----------------?

b. What amount can Ralph deduct if he and the client only discussed business during the course of the dinner?

Deductible amount ---------------------?

c. What amount can Ralph deduct if he and the potential client tried to discuss business during the course of the theater performance but did not discuss business at any other time?

Deductible amount ------------------?

d. What amount can Ralph deduct if the potential client declined Ralph's invitation, so Ralph took his accountant to dinner and the theater to reward his accountant for a hard day at work? At dinner, they discussed the accountant's workload and upcoming assignments.

Deductible amount -------------------?

Question No. 4

Melissa recently paid $870 for round-trip airfare to San Francisco to attend a business conference for three days. Melissa also paid the following expenses: $400 fee to register for the conference, $260 per night for three nights' lodging, $120 for meals, and $425 for cab fare. (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)

a. What amount of the travel costs can Melissa deduct as business expenses?

Deductible amount -------------------------?

b. Suppose that while Melissa was on the coast, she also spent two days sightseeing the national parks in the area. To do the sightseeing, she paid $1,010 for transportation, $1,055 for lodging, and $495 for meals during this part of her trip, which she considers personal in nature. What amount of the travel costs can Melissa deduct as business expenses?

Deductible amount ----------------------?

c. Suppose that Melissa made the trip to San Francisco primarily to visit the national parks and only attended the business conference as an incidental benefit of being present on the coast at that time. What amount of the airfare can Melissa deduct as a business expense?

Deductible amount -------------------?

d. Suppose that Melissa's permanent residence and business was located in San Francisco. She attended the conference in San Francisco and paid $400 for the registration fee. She drove 117 miles over the course of three days and paid $111 for parking at the conference hotel. In addition, she spent $595 for breakfast and dinner over the three days of the conference. She bought breakfast on the way to the conference hotel and she bought dinner on her way home each night from the conference. What amount of these costs can Melissa deduct as business expenses? (Use standard mileage rate.)

Deductible amount _--------------------------?

Question No. 5

Kimberly is a self-employed taxpayer. She recently spent $1,200 for airfare to travel to Italy. What amount of the airfare is deductible in each of the following alternative scenarios? (Leave no answers blank. Enter zero if applicable.)
a. Her trip was entirely for personal purposes.

Deductible amount --------------------?

b. On the trip, she spent seven days on personal activities and three day(s) on business activities.

Deductible amount ---------------------?

c. On the trip, she spent seven days on business activities and three day(s) on personal activities.

Deductible amount -----------------------?

d. Her trip was entirely for business purposes.

Deductible amount ------------------------?

Question No. 6

This year Amy purchased $2,100 of equipment for use in her business. However, the machine was damaged in a traffic accident while Amy was transporting the equipment to her business. Note that because Amy did not place the equipment into service during the year, she does not claim any depreciation expense for the equipment.

a. After the accident, Amy had the choice of repairing the equipment for $2,540 or selling the equipment to a junk shop for $730. Amy sold the equipment. What amount can Amy deduct for the loss of the equipment?

Deductible amount ---------------------?

b. After the accident, Amy repaired the equipment for $860. What amount can Amy deduct for the loss of the equipment?

Deductible amount --------------------------?

c. After the accident, Amy could not replace the equipment so she had the equipment repaired for $4,800. What amount can Amy deduct for the loss of the equipment?

Deductible amount ------------------------?

Question no. 7

Jeremy is a calendar-year taxpayer who sometimes leases his business equipment to local organizations. He recorded the following receipts this year. Indicate the extent to which these payments are taxable income to Jeremy this year if Jeremy is (1) a cash-method taxpayer and (2) an accrual-method taxpayer. (Leave no answers blank. Enter zero if applicable.)

a. $3,000 deposit from the Ladies' Club, which wants to lease a trailer. The club will receive the entire deposit back when the trailer is returned undamaged.

Income under cash method ------------------?
Income under accrual method----------------?

b. $1,300 from the Ladies' Club for leasing the trailer from December of this year through March of next year ($325 per month).

Income under cash method ------------------?
Income under accrual method----------------?

c. $675 lease payment received from the Men's Club this year for renting Jeremy's trailer last year. Jeremy billed the club last year but recently he determined that the Men's Club would never pay him, so he was surprised when he received the check.

Income under cash method ------------------?
Income under accrual method----------------?

Question No. 8

In January of year 0, Justin paid $6,000 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting.

What amount of the insurance premium may Justin deduct in year 0 in each of the following alternative scenarios? (Leave no answers blank. Enter zero if applicable.)

a. The policy covers the business property from April 1 of year 0 through March 31 of year 1.

Deductible amount --------------------?
b. The policy begins on February 1 of year 1 and extends through January 31 of year 2.

Deductible amount ----------------------?

c. Justin pays $7,200 for a 24-month policy that covers the business from April 1, year 0, through March 31, year 2. (Do not round intermediate calculations.)

Deductible amount --------------------?

d. Instead of paying an insurance premium, Justin pays $6,000 to rent his business property from April 1 of year 0 through March 31 of year 1.

Deductible amount ---------------------------?

Question No. 9

In October of year 0, Janine received a $25,725 payment from a client for 35 months of security services she will provide starting on November 1 of year 0. This amounts to $735 per month. Janine is a calendar-year taxpayer.

a. When must Janine recognize the income from the $25,725 advance payment for services if she uses the cash method of accounting?

Multiple answer: (Choose one)
a. Year 0 and year 1
b. Year 2
c. Year 0
d. Year 1
e. Year 1 and year 2

b. When must Janine recognize the income from the $25,725 advance payment for services if she uses the accrual method of accounting?

• Year 0 and Year 1
• Year 1 and Year 2
• Year 0
• Year 2
• Year 1

c. Suppose that instead of services, Janine received the payment for a security system (inventory) that she will deliver and install in year 2. When would Janine recognize the income from the advance payment for inventory sale if she uses the accrual method of accounting and she uses the deferral method for reporting income from advance payments? For financial accounting purposes, she reports the income when the inventory is delivered.

• Year 1 and year 2
• Year 0 and year 1
• Year 1
• Year 2
• Year 0

d. Suppose that instead of services, Janine received the payment for inventory to be delivered next year. When would Janine recognize the income from the advance payment for sale of goods if she uses the accrual method of accounting and she uses the full-inclusion method for advance payments?

• Year 0 and year 1
• Year 1 and year 2
• Year 1
• Year 0
• Year 2

Question No. 10

his year Amber opened a factory to process and package landscape mulch. At the end of the year, Amber's accountant prepared the following schedule for allocating manufacturing costs to the mulch inventory, but her accountant is unsure of what costs need to be allocated to the inventory under UNICAP rules. Approximately 10 percent of management time, space, and expenses are spent on this manufacturing process. At the end of the year, Amber's accountant indicated that the business had processed 19,900 bags of mulch but only 3,980 bags remained in the ending inventory.

What is Amber's tax basis in her ending inventory after applying the UNICAP rules to allocate indirect costs to inventory? (Assume direct costs are allocated to inventory according to the level of ending inventory. In contrast, indirect costs are first allocated by time spent and then according to level of ending inventory.) (Round your answers to 2 decimal places. Leave no answers blank. Enter zero if applicable.)

Screen shot attached for filling.

Question No. 11

On November 1 of year 0, Jaxon borrowed $32,000 from Bucksnort Savings and Loan for use in his business. In December, Jaxon paid interest of $2,880 relating to the 12-month period from November of year 0 through October of year 1. (Do not round intermediate calculations.)
a. How much interest, if any, can Jaxon deduct in year 0 if his business uses the cash method of accounting for tax purposes?

Deductible amount ----------------------?

b. How much interest, if any, can Jaxon deduct in year 0 if his business uses the accrual method of accounting for tax purposes?

Deductible amount --------------------------?

Attachment:- Business Expense Questions.rar