Question

[20] Bob, a calendar-year, cash-basis taxpayer, owns an insurance agency. Bob has four people selling insurance for him. The salesmen incur ordinary and necessary meal and entertainment expenses for which Bob reimburses them monthly. During the current year, Bob reimbursed his agents $10,000 for meals and $26,000 for entertainment. How much of the reimbursement can Bob deduct for meal and entertainment expenses on his current-year federal income tax return?

A. $5,000

B. $8,000

C. $30,800

D. $36,000

[21] In January 2018, Mr. D, who is self-employed, purchased a new automobile, which he uses 100% for business. During 2018, he drove the car 14,000 miles. Mr. D also owns another automobile, which he uses occasionally for business but primarily for persona 2018, he drove the second car 2,000 business miles. The second car is not fully depreciated. What is the amount of Mr. D's automobile expense deduction using the standard mileage rate?

A. $7,490

B. $7,630

C. $8,560

D. $8,720

[22] The 50% limit on deductibility of business-related expenses applies to which of the following?

A. Meals while traveling away from home on business.

B. Employee's reimbursed meal expenses.

C. Meals for customers at your place of business.

D. Meals while traveling away from home on business and meals for customers at your place of business.

[23] Which one of the following statements concerning the recordkeeping requirements for travel is true?

A. Social Security numbers of business guests must be recorded to support travel expenses.

B. If the business purpose of a meal is not recorded, other evidence may be used to substantiate the business purpose.

C. Receipts must be kept for all transportation expenditures over $75.

D. A canceled check, by itself, is adequate evidence to support a travel expense.

[24] During the current year, Ashley Corporation charged the following payments to miscellaneous expense:

Travel expense of $300 for the company president to offer voluntary testimony at the state capital against proposed legislation regarded as unfavorable to its business Christmas gifts to 20 customers at $75 each Contribution of $600 to local political candidate The maximum deduction that Ashley can claim for these payments is

A. $800

B. $1,400

C.$1,800

D. $2,400

[25] During the current year, Mr. Y, a cash-basis sole proprietor, paid the following:

Base wages to his 4 employees

$100,000 Year-end bonuses paid to 2 employees for

establishing new sales records

20,000 Christmas gifts to his 4 employees in

appreciation for past services ($50 per gift)

200

What is the total amount Mr. Y can deduct on his current-year income tax return?

A. $100,000

B. $120,000

C. $120,100

D. $120,200

[26] Flora Corporation made the following awards of tangible personal property to employees during the current year under a written, qualified, nondiscriminatory plan:

Value Name Reason for Award Received Mike 20 years' employment $250 Kurt 20 years' employment 250 Steve 35 years' employment 450 Casey

40 years' employment 550 George 5-year safety award 200 No other safety awards were awarded during the current year. The amount Flora can deduct related to these awards is

A. $400

B. $1,300

C. $1,500

D. $1,700

[27] All of the following payments made to employees would be currently deductible as business expenses except

A. Wages paid to employees for constructing a new building to be used in the business.

B. Vacation pay paid to an employee when the employee chooses not to take a vacation.

C. Reasonable salary paid to a corporate officer owning a controlling interest for services she rendered.

D. Lump-sum payment made to the beneficiary of a deceased employee that is reasonable in relation to the employee's past services.

[28] In Year 1, Paige signed a 6-year lease for a building to use in her business. In Year 3, she installed shelves and made other leasehold improvements to the building for a total of $3,200. She can

A. Deduct the $3,200 as a current expense.

B. Depreciate the $3,200 using regular MACRS depreciation.

C. Depreciate the $3,200 using the alternative depreciation system.

D. Amortize the $3,200 over the remaining term of the lease.

[29] In April of the current year, Mr. Beach, an accrual-basis taxpayer, had a $25,000 theft loss from inventory items held for sale to customers in the ordinary course of his business. In August of the current year, he received a $25,000 reimbursement from his insurance company to cover the loss. Which of the following is a correct method of reporting the loss and reimbursement on Beach's income tax return?

A. Include the $25,000 in ordinary income; the loss is accounted for in the cost of goods sold.

B. Do not report the loss as a separate item; do not include the $25,000 in ordinary income.

C. Include the $25,000 in ordinary income; decrease the cost of goods sold by the $100 casualty loss rule.

D. Apply the 10% adjusted gross income rule to the loss; the amount of the deductible loss would be the amount of the reimbursement to be included in ordinary income.

Answer 1

[22] The 50% limit on deductibility of business-related expenses applies to which of the following?

Ans) Option A). Meals while traveling away from home on business.

24) Ans Option D. $ 2400