1. Rudy owns a small fleet of rental limousines. He tells his drivers which routes they will drive and when the trips will occur. The drivers are required to perform their services in accordance with his customer service principles. Rudy also reimburses the drivers for all reasonable and necessary expenses incurred while performing their service, and requires them to work exclusively for his company. The drivers are compensated based on a flat fee per trip and can keep their tips. For tax purposes, how should the drivers be classified?

		Common Law Employees
		Independent Contractors
		Statutory Employees
		Statutory Independent Contractors (a/k/a Statutory Nonemployees)

10 points

QUESTION 6

1. Leslie; a calendar year, accrual taxpayer; owns a greenhouse company as a sole proprietorship. She warranties her plants for 3 months. Based on sales for 2020, she accrued a warranty reserve for $4,000. Her actual cost of warranties for 2020 (actual plants replaced) totaled $2,500. When and how much warranty expense may she deduct for these transactions?

		$1,500 for 2020
		$1,500 for 2021
		$4,000 for 2020
		$2,500 for 2020

10 points

QUESTION 7

1. Which of the following must use the accrual basis of accounting?

		A retailer with significant inventory and average annual gross receipts over $26 million in the prior three-year period
		A partnership whose annual gross receipts are $24 million and insignificant inventory
		An unincorporated farm with annual gross receipts of $22 million and no inventory
		A law firm with average annual gross receipts of about $10 million and no inventory