ACCT323 connect quiz 3

Question
Quiz 3

1.

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Kip started a wholesale store this year selling bulk peanut butter. In January of this year Kip purchased an initial five tubs of peanut butter for a total cost of $5,000. In July Kip purchased three tubs for a total cost of $6,000. Finally, in November Kip bought two tubs for a total cost of $1,000. Kip sold six tubs by year end. What is Kip’s ending inventory under the FIFO cost-flow method?

$12,000

$6,000

$5,000

$2,500

$1,000

2.

Paris operates a talent agency as a sole proprietorship, and this year she incurred the following expenses in operating her talent agency. What is the total deductible amount of these expenditures?

$1,000 dinner with a film producer where no business was discussed
$500 lunch with sister Nicky where no business was discussed
$700 business dinner with a client but Paris forgot to keep any records (oops!)
$900 tickets to the opera with a client following a business meeting

$450

$900

$1,100

$1,200

$800

3.

Which of the following is a true statement about travel that has both business and personal aspects?

Transportation costs are always fully deductible.

Meals are not deductible for this type of travel.

Only half of the cost of meals and transportation is deductible.

The cost of lodging, and incidental expenditures is limited to those incurred during the business portion of the travel.

None of these.

4.

Individual proprietors report their business income and deductions on:

Form 1065

Form 1120S

Schedule C

Schedule A

Form 1041

5.

Which of the following expenditures is most likely to be deductible for a construction business?

A fine for a zoning violation.

A tax underpayment penalty.

An “under the table” payment to a government representative to obtain a better price for raw materials.

A payment to a foreign official to expedite an application for a business permit.

An arm’s length payment to a related party for emergency repairs of a sewage line.

6.

Don operates a taxi business, and this year one of his taxis was damaged in a traffic accident. The taxi was originally purchased for $32,000 and the adjusted basis was $2,000 at the time of the accident. The taxi was repaired at a cost of $2,500 and insurance reimbursed Don $700 of this cost. What is the amount of Don’s casualty loss deduction?

$1,300.

$2,500.

$1,800.

$2,000.

Don is not eligible for a casualty loss deduction.

7.

Which of the following is a true statement about a request for a change in accounting method?

Some requests are automatically granted.

Most requests require the permission of the Commissioner.

Many requests require payment of a fee and a good business purpose for the change.

Form 3115 is required to be filed with a request for change in accounting method.

All of these are true.

8.

Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year. This year he hired his son as an apprentice cook. Jones agreed to pay his son $40,000 per year. Which of the following is a true statement about this transaction?

Jones will be allowed to deduct $40,000 only if his son eventually develops into an expert cook.

Jones will be allowed to accrue $40,000 only if he pays his son in cash.

Jones will be allowed to deduct $35,000 as compensation and another $5,000 can be deducted as an employee gift.

Jones can only deduct $20,000 because an apprentice cook is only worth half as much as an experienced cook.

None of these-Jones can only deduct reasonable compensation.

9.

Which of the following is a true statement?

Interest expense is not deductible if the loan is used to purchase municipal bonds.

Insurance premiums are not deductible if paid for “key man” life insurance.

One half of the cost of business meals is not deductible.

All of these are true.

None of these is true.

10.

Which of the following would be considered an improvement rather than a routine maintenance?

Oil change

Engine overhaul

Wiper blade replacement

Air filter change

11.

Bonnie Jo purchased a used computer (5-year property) for use in her sole proprietorship. The basis of the computer was $2,400. Bonnie Jo used the computer in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo’s depreciation expense during the first year assuming the sole proprietorship had a loss during the year (Bonnie did not place the property in service in the last quarter):

$240

$288

$480

$2,400

None of these

12.

Suvi, Inc. purchased two assets during the current year. It placed in service computer equipment (5-year property) on August 10 with a basis of $20,000 and machinery (7-year property) on November 18 with a basis of $10,000. Calculate the maximum depreciation expense, rounded to a whole number (ignoring §179 and bonus depreciation):

$857

$3,357

$5,429

$6,000

None of these

3.

Daschle LLC completed some research and development during June of the current year. The related costs were $60,000. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization expense Daschle may deduct during the current year?

$0

$6,500

$7,000

$12,000

None of these

14.

Racine started a new business in the current year. She incurred $52,000 of start-up costs. If her business started on November 23rdof the current year, what is the total expense she may deduct with respect to the start-up costs for her initial year, rounded to the nearest whole number?

$2,555.

$3,544.

$5,522.

$52,000.

None of these.

15.

Which of the allowable methods allows the most accelerated depreciation?

150 percent declining balance

200 percent declining balance

Straight line

Sum of the years digits

None of these allow accelerated depreciation

16.

Assume that Brittany acquires a competitor’s assets on September 30thof the prior year. The purchase price was $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a 1-year non-compete agreement). Given, that the non-compete agreement expires on September 30thof year 2, what is Brittany’s amortization expense for the second year, rounded to the nearest whole number?

$0

$1,667

$2,917

$3,333

None of these

17.

The MACRS recovery period for automobiles and computers is:

3 years

5 years

7 years

10 years

None of these

17.

The MACRS recovery period for automobiles and computers is:

3 years

5 years

7 years

10 years

None of these

18.

Each of the following is true except for:

A direct involuntary conversion occurs when property taken under imminent domain is replaced with other property.

Qualified replacement property rules are more restrictive than the like-kind property rules.

An indirect involuntary conversion occurs when property is destroyed and insurance proceeds are used to purchase qualified replacement property.

Losses realized in involuntary conversions are deferred.

All of these are true.

19.

Which one of the following is not a requirement of a deferred like-kind exchange?

The like-kind property to be received must be identified within 45 days.

The exchange must be completed within the taxable year.

The like-kind property must be received within 180 days.

A third party intermediary is often used to facilitate the exchange.

All of these.

20.

What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?

To facilitate finding replacement property.

To help acquire the replacement property.

To prevent the seller from receiving cash (boot) that will taint the transaction.

To certify the taxpayer’s Form 8824.

All of these.

21.

Which of the following sections recaptures or recharacterizes only corporate taxpayer’s gains?

§291.

§1239.

§1245.

Unrecaptured §1250 gains.

None of these.

22.

Which of the following is not true regarding installment sales?

Only gains are eligible for installment sale reporting.

Depreciation recapture is deferred in an installment sale.

The gross profit percentage is needed to determine the annual gain recognized.

Stock sales are ineligible for installment sale treatment.

None of these.

23.

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad’s gain or loss?

$25,000 ordinary and $50,000 unrecaptured §1250 gain.

$25,000 §1231 gain and $50,000 unrecaptured §1250 gain.

$75,000 ordinary gain.

$75,000 capital gain.

None of these.

24.

Leesburg sold a machine for $2,200 on November 10thof the current year. The machine was purchased for $2,600. Leesburg had taken $1,200 of depreciation deductions. What is Leesburg’s gain or loss realized on the machine?

$800 gain.

$1,000 gain.

$1,200 loss.

$1,400 loss.

None of these.

25.

Which of the following is not used in the calculation of the amount realized:

Cash.

Adjusted basis.

Fair market value of other property received.

Buyer’s assumption of liabilities.

All of these.

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