Multiple Choice Questions
1. Trade or business expenses are treated as
a. A deduction for AGI.
b. An itemized deduction if not reimbursed.
c. A deduction from AGI.
d. A deduction from AGI limited to the amount in excess of 2% of AGI.
2. Which of the following is not a “trade or business” expense?
a. Interest on investment indebtedness.
b. Property taxes on business equipment.
c. Depreciation on business property.
d. Cost of goods sold.
3. Atlas, a financial consultant, had the following income and expenses in his business:
Fee Income …………………………………………………….. $235,000
Expenses:
Rent Expense ………………………………………………….. 18,000
Penalties assessed by the SEC ………………………………… 2,500
Office expenses ……………………………………………….. 6,000
Supplies ……………………………………………………….. 6,000
Interest paid on note used to acquire office equipment ………. 2,700
Speeding tickets going to see clients …………………………. 650
How much net income must Atlas report from this business?
a. $199,150
b. $202,300
c. $202,950
d. $205,450
4. Mandy, a CPA, flew from Raleigh to Seattle to attend an accounting conference that lasted four days. Then she took three days of vacation to go sightseeing. Mandy’s expenses for the trip are as follows:
Airfare …………………………………………. $ 625
Lodging (7 days × $145) ……………………… 1,015
Meals (7 days × $75) ………………………….. 525
Taxi from airport to hotel and back……………. 70
Mandy’s travel expense deduction is
a. $1,425.
b. $1,575.
c. $1,973.
d. $2,235.
5. On May 5, 2009, Jill purchased equipment for $40,000 to be used in her business. She did not elect to expense the equipment under Section 179 or bonus depreciation. On January 1, 2014, she sells the equipment to a scrap metal dealer. What is the cost recovery deduction for 2014?
a. $ 892.
b. $ 1,784.
c. $ 3,568 .
d. No deduction allowed.
6. On April 15, 2012, Andy purchased some furniture and fixtures(7-year property) for $10,000 to be used in his business. He did not elect to expense the equipment under §179 or bonus depreciation. On June 30, 2014, he sells the equipment. What is the cost recovery deduction for 2014?
a. $ 0.
b. $ 875.
c. $1,429.
d. $1,749.
7. Lawrence purchased an apartment building on February 10, 2014, for $330,000, $30,000 of which was for the land. What is the cost recovery deduction for 2014?
a. $0.
b. $ 6,741.
c. $ 9,546.
d. $10,660.
8. Roy purchased an office building on March 30, 2011, for $250,000. $25,000 of which was for the land. On July 30, 2014, he sold the office building. What is the cost recovery deduction for 2014?
a. $0.
b. $3,125.
c. $5,769.
d. $6,410.
9. On June 30, 2014, Ken purchased an apartment building for $500,000. Determine the cost recovery deduction for 2014:
a. $4,925.
b. $5,335.
c. $6,955.
d. $9,850.
10. During the year, Cory purchased a log skidder (7-year property) for $55,000 for his business. Assume that he has income from his business of $30,000, and he and his wife have combined salaries and wages income of $40,000. What is the maximum deduction he can take for his business in relation to the log skidder purchase?
a. $7,860.
b. $30,000.
c. $31,429.
d. $55,000.