Question 1

The Gotham Goliaths ball club of the World Baseball League insures the life of its star center fielder, Mickey Mays, for $1 million. The annual premium is $10,000 and the Goliaths club named itself as beneficiary. The club also pays an annual premium of $5,000 for insurance to recover overhead expenses in the event of a strike by the ballgirls who retrieve foul balls and thrown bats. It also has property insurance covering the clubs chewing tobacco for which the annual premium is $1,000. What amount may the Gotham Goliaths deduct for its annual insurance premiums?

1 $0

2 $1,000

3 $6,000

4 $16,000

Question 2

All of the following statements regarding the nonaccrual-experience method of accounting for bad debts are true except

1 Under this method, you do not have to accrue income that you do not expect to collect.

2 This method cannot be used if interest or penalties are required to be paid for late payments.

3 This method can only be used for amounts to be received that are earned by performing services.

4 This method can be used for amounts to be received that are earned from any source.

Question 3

During the current year, Dr. Water, a marine biologist specializing in sharks, attended a convention in Australia concerning the feeding and migration habits of sharks. The convention was beneficial to his business since it was held in an area renowned for its abundance of sharks.

Also, the foremost shark authorities in the world live there. He spent 7 full days attending the convention and 3 days sightseeing. He incurred the following costs: $2,000 for airfare; $1,000 for lodging; and $500 for meals. How much may Dr. Water deduct for the trip on his income tax return for the current year?

1 $3,250

2 $2,275

3 $1,750

4 $0

Question 4

Which of the following expenses would not meet the directly related test for entertainment?

1 Entertainment in a hospitality room at a convention where business goodwill is created through the display of business products.

2 Restaurant owner providing an occasional free meal to a loyal customer.

3 Entertainment of civic and business leaders at the opening of a new hotel for the purpose of getting business publicity.

4 Entertainment of out-of-town business associates the day before the business discussion.

Question 5

During the current year, Paulette paid $9,000 in membership dues to a local country club. Her records reflected that she used the club as follows:

Personal use 30%

Directly related entertainment 30%

Associated with entertainment 40%

Her records also show that she paid $2,100 for meals and entertainment that were either directly related to or associated with her trade or business. How much of the dues, meals, and entertainment can Paulette deduct in the current year?

1 $7,350

2 $3,750

3 $2,100

4 $1,050