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
