QUESTION 1

Bonita earns $31,000 from her job, and she has $1,000 of interest income. She has itemized deductions and personal exemptions of $35,000. There are no casualty or theft losses in the itemized deductions. What is Bonita's net operating loss for the current year?

A.

$0

B.

$3,000

C.

$1,000

D.

$4,000

E.

Some other amount

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QUESTION 2

Carol maintains an office in her home where she conducts a dressmaking business. During the year she collects $4,000 from sales, pays $1,300 for various materials and supplies, and properly allocate $2,500 of rent expense and $500 of her utilities expense to the use of her home office. What amount of the rent and utilities expense may Carol deduct in the current year in computing her net income or loss from the dressmaking business?

A.

$2,700

B.

$3,000

C.

$2,500

D.

$0

E.

$500

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QUESTION 3

Daniel is a self-employed consultant. Until this year he was always an employee. He comes to discuss his new business with you. As his tax accountant, you should:

A.

Discuss the rules for deducting automobile expenses

B.

Discuss all of the above

C.

Discuss the self-employment tax, as well as the income tax, on business earnings in order to help Daniel estimate what he might owe in taxes for the year

D.

Discuss setting up a good record-keeping system for his new business

E.

Discuss the substantiation requirements for meals and entertainment.

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QUESTION 4

If a taxpayer has beginning inventory of $25,000, purchase of $185,000, and ending inventory of $30,000, what is the amount of the cost of goods sold for the current year?

A.

None of the above

B.

$190,000

C.

$180,000

D.

$185,000

E.

$155,000

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QUESTION 5

In the current year, Mary started a profitable housekeeping business as a sole proprietor. She has ten housekeepers working for her and spends her time selling their services and coordinating her employee's time. Mary made $50,000 in her first year of operations. In addition to filing a Schedule C to report her busness earnings, Mary must also file:

A.

Schedule A

B.

None of the above

C.

Schedule SE

D.

Schedule B

E.

Schedule D

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QUESTION 6

Joe is a self-employed information technology consultant from San Francisco, CA. He takes a trip to Chicago primarily for business. He takes two personal days to go to museums and see the sights of Chicago. How should he treat the expenses related to this trip?

A.

None of the expenses are deductible since there was an element of personal enjoyment in the trip.

B.

The cost of all of the airfare and the business days should be deducted, while the cost of the personal days are not deductible.

C.

Fifty percent of the trip should be deducted as a business expense since the IRS limits such business expenses to 50 percent of the actual cost.

D.

One hundred percent of the trip should be deducted as a business expense since the trip was primarily for business.

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QUESTION 7

Kathy is a self-employed taxpayer working exclusively from her home office. Before the home office deduction, Kathy has $3,000 of net income. Her allocable home office expenses are $5,000 in total (includes $2,000 of allocated interest and property taxes). How are the home office expenses treated on her current year tax return?

A.

Only $3,000 of home office expenses may be deducted, resulting in net business income of zero. None of the extra $2,000 of home office expenses may be carried forward or deducted.

B.

None of the home office expenses may be deducted since Kathy's income is too low.

C.

All home office expenses may be deducted, resulting in a business loss of $2,000.

D.

Only $3,000 of home office expenses may be deducted, resulting in net business income of zero. The extra $2,000 of home office expenses may be carried forward and deducted in a future year against home office income.

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QUESTION 8

Loren loaned a friend $9,000 as financing for a new business venture. IN the current year, Loren's friend declares bankruptcy and the debt is considered totally worthless. What amount may Loren deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year?

A.

$9,000 short-term capital loss

B.

$9,000 ordinary loss

C.

$3,000 ordinary loss

D.

$3,000 short-term capital loss

E.

$6,000 short-term capital loss

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QUESTION 9

Under the high-low method, the federal per diem amount given in the the text for 2014 for a high-cost locality for travel in the United States is:

A.

$242 per day

B.

$251 per day

C.

$300 per day

D.

$163 per day

E.

Some other amount

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QUESTION 10

What form does a self-employed sole proprietor usually use to report income and expenses from business?

A.

None of the above

B.

Schedule A, Miscellaneous Itemized Deductions

C.

Schedule D

D.

Form 2103, Employee Business Expenses

E.

Schedule C

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QUESTION 11

Which of the following business gifts are fully deductible?

A.

A gift to a client and her non client spouse costing $45

B.

A gift to an employee paid under a qualified plan, for not having an on-the-job injury for 25 years, costing $1,650

C.

A gift to a client costing $35

D.

A gift to an employee, for 10 years of continued service, costing $250

E.

None of the above are fully deductible

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QUESTION 12

Which of the following employees are most likely permitted to deduct the cost of their uniform?

A.

A lawyer who is required by her employer to wear a business suit

B.

A furnace repairman who must wear overalls while on the job

C.

A nurse who can wear casual clothes while on duty

D.

A marine who must purchase uniforms for on-duty and off-duty hours

E.

A cheerleader for the San Diego Chargers football team who purchases her own costume

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QUESTION 13

Which of the following expenses incurred while the taxpayer is away from home "overnight" is not included as a travel expense?

A.

Meal expenses

B.

Lodging expenses

C.

Business gifts

D.

Laundry expenses

E.

Transportation expenses

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QUESTION 14

Which of the following expenses is deductible as an entertainment expense?

A.

The cost of a cocktail party for clients paid for by a computer salesman at a computer fair

B.

The dues of a racket club used to keep in shape

C.

The cost of a meal at the taxpayer's country club with a potential client during which they discussed golf

D.

The depreciation on an airplane used to entertain customers

E.

The cost of a hunting camp used to entertain customers

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QUESTION 15

Which of the following formulas represents the proper method of calculating cost of goods sold?

A.

Purchases - Beginning inventory - Ending inventory

B.

Beginning inventory + Purchases - Ending inventory

C.

Ending inventory - Purchase - Beginning inventory

D.

Beginning inventory + Ending inventory - Purchases

E.

None of the above

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QUESTION 16

Which of the following is not deductible by the taxpayer?

A.

A subscription to The Harvard Law Review by a lawyer

B.

A subscription to The CPA Journal by a CPA

C.

A subscription to The Yale Medial Journal by a doctor

D.

All of the above are deductible

E.

A subscription to Financial Management by a chief financial officer

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QUESTION 17

Which of the following taxpayers is entitled to a travel expense deduction?

A.

A bank employee who travels to a branch office for a couple of hours of work and decides to stay overnight to attend a play

B.

An employee, who worked in the Salt Lake City plant of a company, who is assigned to the Denver plant of the company for 4 years.

C.

A manager of a chain of department stores who works in the main store 3 weeks out of every month and visits distant branch locations on overnight trips during the remainder of the month

D.

An employee who resigns from his current job and accepts a new job in a city 500 miles away from his current residence

E.

An employee who travels between several business locations within the same city each day

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QUESTION 18

Which of the following taxpayers may not deduct their educational expense?

A.

All of the above are deductible

B.

A CPA who attends a course to review for the real estate agents' exam

C.

A real estate broker who attends a college course on real estate law

D.

A corporate president who attends a management course at a local university

E.

An attorney who attends a course on computing legal damages

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QUESTION 19

Which of the following taxpayers may use the standard mileage method of calculating transportation costs?

A.

A business executive who claimed bonus depreciation in the first year she used the car

B.

A taxi driver who owns a fleet of six cars for hire

C.

A taxpayer who used accelerated depreciation on his automobile

D.

None of the above

E.

An attorney who uses his Porsche for calling on clients

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QUESTION 20

Which of the following taxpayers qualifies for a home office deduction?

A.

An attorney who is employed by a law firm and has a home office in which to read cases

B.

An accounting student who maintains a home office used exclusively to prepare tax returns

C.

A corporate president who uses his home office to entertain friends and customers

D.

A doctor who has a regular office downtown and a library at home to store medical journals

E.

A nurse who maintains a home office to pay bills and read nursing journals