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Tab: Chapter 6 File: 0aa6c77b-4244-4c90-b5d1-f974aab15178.xls Page 1 of 3
No Ans
1 A Elaine - Entertainment Information Deduct
Annual Country Club Dues $800
Cost of meals for clients $1,000 $500
Use of facility for business 80%
Meals limited to 50%.
2 D Business Gifts
No Amount Limit Total Deduct
2 $10 $25 $20 $20
4 $25 $25 $100 $100
4 $50 $25 $200 $100
2 $100 $25 $200 $50
$520 $270
3 D Business miles 18,000
Mileage Rate $0.500
Mileage expense $9,000
Parking and Tolls $145
Total Deduction $9,145
4 E Miles driven for business 12,000
Miles driven for pleasure 3,000
Total miles driven 15,000
Percent for business 80%
Gas, oil, and maintenance $3,500
Insurance $720
Depreciation $3,060
License $80
Subtotal for mileage 7,360
Percent for business 80%
5,888 $5,888
Business mileage 12,000
Mileage Rate $0.500
Mileage expense $6,000
Parking fees and tolls (100% business) $130 $130 $130
Interest on car loan 80% $500 $400 $400
Total Deduction $6,418 $6,530
5 A
6 C Juan went to Atlanta-7 days. Total Deduct
Round trip airfare $190 $190
Days Cost
Days-business 3
Days-pleasure 2
Hotel daily rate 5 $108 540 324
Meals per day 5 $22 110 66
Less: 50% disallowed (33)
Total Cost $840
Total Deduction $547
7 A This is a seminar for investors. Not related to her business
8 C Changing the classification from salary to dividend, causes payment
to be non-deductible by the paying corporation.
Tab: Chapter 6 File: 0aa6c77b-4244-4c90-b5d1-f974aab15178.xls Page 2 of 3
9 C The employee reports either salary income or dividend income.
10 A On the cash basis he will report revenue of $780,000 the amount
collected. You don't write off a receivable - there is no receivable.
Cash basis!
11 D Deductibility of business bad debts
12 B Beginning Balance in allowance account $5,000
Provision for bad debts 5,000
Balance in allowance account before write-off 10,000
Balance in allowance account after write-off 7,000
Amount of bad debts written off 3,000
Provision for bad debts $5,000
Tax expense for bad debts is less than provision.
Taxable income is more than GAAP income before taxes.
13 D Beginning receivables $80,000
Sales on credit 100,000
Total potential collection 180,000
Accounts written off (3,000)
Ending balance in receivables (85,000)
Collected from customers $92,000
14 B
15 A
16 B The cost of the CPA review course is not a deductible expense
17 C Robin is an employee of The Craftmatic Company.
She incurs a total of $7,500 in business expenses as follows:
Lodging $2,500
Transportation (no commuting) 3,500
Dues and subscriptions 1,500
Total 7,500
Robin receives reimbursement 5,600
Difference $1,900
18 D This is a non-accountable plan.
19 E
20 E
21 C Bill and Betty are covered by qualified plan.
Year 2010
Total earned income & AGI 90,000
Start of phase-out range 89,000
Excess 1,000
Phase-out range 20,000
Percent in phase-out range 5%
IRA deduction limit 5,000
Phase-out 250
Deduction after phase-out [Each] $4,750
Deduction for both $9,500
AGI before IRA Deduction $90,000
AGI $80,500
Tab: Chapter 6 File: 0aa6c77b-4244-4c90-b5d1-f974aab15178.xls Page 3 of 3
22 C Coverdale
AGI 102,500
Start of phase-out range 95,000
Excess 7,500
Phase-out range 15,000
Percent in phase-out range 50%
Coverdale limit per child 2,000
Phase-out 1,000
Deduction limit per child after phase-out $1,000
23 C
24 D Jay obtains a new job in Boston and moves from Reno during the current year.
He incurs the following moving expenses: Return
Transportation of household goods $6,700 $6,700
House-hunting trips to Boston 600
Cost of transporting Jay's family 2,300 $2,300
Meals incurred while moving the family 200
Temporary living expenses while waiting
for the new residence to be ready 1,000
What is Jay's moving expense deduction? $9,000
25 C Salary $80,000 $80,000
Moving costs ($10,000) ($10,000)
Airline tickey ($1,000) ($1,000)
Meals ($20)
$69,000
