Chapter 8 Quiz

Chapter 8 Quiz

Name

Class

1. Only half the cost of a business meal is deductible unless the meal is associated with the active conduct of rent/royalty business.

a. True

b. False

2. Expenses associated with illegal activities are not deductible, unless a business purpose can be provided. For example, speeding fines can be deducted as long as the speeding was motivated by profit.

c. True

d. False

3. A deduction is reasonable in amount means that expenditures cannot be excessive (even if the amount is motivated by profit).

e. True

f. False

4. Rick is a calendar-year taxpayer (for individual income tax purposes). Rick has a business, Green Acres, which he is the sole owner of. Suppose that rather than electing “sole proprietor” status, Rick incorporates Green Acres as a C Corporation. Among the various options for different tax year-ends, which options are available to Green Acres? (Note: this C Corporation status only applies to this problem)

g. Calendar year-end

h. Fiscal year-end

i. 52/53 week year-end

j. Because Rick is the sole owner of Green Acres, Green Acres must adopt the same year-end as Rick, calendar year end.

5. On July 1 of this year, Green Acres paid $1,200 for a 12-month insurance policy that cover business property from accidents and casualties from July 1 of this year, and ending December 31 of next year (18 months). How much of the $1,200 expenditure may Green Acres deduct this year if it uses the cash method of accounting for business activities?

k. $1,200

l. $0

m. $600

n. $400

6. [QUESTION NOT GRADED] On May 1, 2014, Green Acres pays $7,200 in advance to rent its shop for 12 months ($600 per month). What amount of the $7,200 rental payment may Green Acres deduct in 2014 if he is using the cash method of accounting for business purposes?

o. $4,200

p. $600

q. $7,200

r. $0

7....