Test Bank for Taxation of Business Entities 2020 11th Edition By Spilker

Test Bank for Taxation of Business Entities 2020 11th Edition By Spilker

Test Bank for Taxation of Business Entities 2020 11th Edition By Spilker
Taxation of Business Entities 2020 11th Edition By Spilker – Test Bank
Taxation of Business Entities

Chapter 1  

Business Income, Deductions, and Accounting Methods

 1) The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is “ordinary and necessary.”

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Business Deductions

Learning Objective:  01-01 Identify common business deductions.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

2) Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Business Deductions

Learning Objective:  01-01 Identify common business deductions.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

3) The phase “ordinary and necessary” has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

Answer:  FALSE

Explanation:  A necessary expense is an expense that is helpful or conducive to the business activity.

Difficulty: 2 Medium

Topic:  Business Deductions

Learning Objective:  01-01 Identify common business deductions.

Bloom’s:  Analyze

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

4) Reasonable in amount means that expenditures can be exorbitant as long as the activity is motivated by profit.

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Business Deductions

Learning Objective:  01-01 Identify common business deductions.

Bloom’s:  Analyze

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

5) The test for whether an expenditure is reasonable in amount is whether the expenditure was for an “arm’s length” amount.

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Business Deductions

Learning Objective:  01-01 Identify common business deductions.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

6) Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of business.

Answer:  FALSE

Explanation:  No deductions are allowed for expenditures that are against public policy.

Difficulty: 2 Medium

Topic:  Limitations on Business Deductions

Learning Objective:  01-02 Determine the limits on deducting business expenses.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

7) Although expenses associated with illegal activities are not deductible, political contributions can be deducted as long as the donation is not made to a candidate for public office.

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Limitations on Business Deductions

Learning Objective:  01-02 Determine the limits on deducting business expenses.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

8) When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Limitations on Business Deductions

Learning Objective:  01-02 Determine the limits on deducting business expenses.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking