ch6-1

Which of the following is incorrect?

Benita incurred a business expense on December 10, 2012, which she charged on her bank credit card. She paid the credit card statement which included the charge on January 5, 2013. Which of the following is correct?

Trade and business expenses should be treated as:

Which of the following is incorrect?

Which of the following is deductible as a trade or business expense?

Petal, Inc. is an accrual basis taxpayer. Petal uses the aging approach to calculate the reserve for bad debts. During 2012, the following occur associated with bad debts.


Credit sales $325,000
Collections on credit sales 290,000
Amount added to the reserve 13,000
Beginning balance in the reserve –0–
Identifiable bad debts during 2012 14,000

The amount of the deduction for bad debt expense for Petal for 2012 is:

Which of the following is correct?

Terry and Jim are both involved in operating illegal businesses. Terry operates a gambling business and Jim operates a drug running business. Both businesses have gross revenues of $500,000. The businesses incur the following expenses.


Terry Jim
Employee salaries $200,000 $200,000
Bribes to police 25,000 25,000
Rent and utilities 50,000 50,000
Cost of goods sold –0– 125,000

Which of the following statements is correct?

Which of the following can be claimed as a deduction for AGI?

Which of the following are deductions for AGI?

Which of the following is a deductionfrom AGI (itemized deduction)?

Which of the following is not a “trade or business” expense?

Janice is single, had gross income of $38,000, and incurred the following expenses:

Charitable contribution $2,500
Taxes and interest on home 9,000
Legal fees incurred in a tax dispute 1,000
Medical expenses 4,000
Penalty on early withdrawal of savings 200

Her AGI is:

Al single, age 60, and has gross income of $140,000. His deductible expenses are as follows:

Alimony $20,000
Charitable contributions 4,000
Contribution to a traditional IRA 5,000
Expenses paid on rental property 7,500
Interest on home mortgage and property taxes
on personal residence 7,200
State income tax 2,200

What is Al’s AGI?

Paula is the sole shareholder of Violet, Inc. For 2012, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet’s taxable income for 2012 is $500,000. On audit, the IRS treats $100,000 of Paula’s salary as unreasonable. Which of the following statements is correct?

Andrew, who operates a laundry business, incurred the following expenses during the year.

-Parking ticket of $100 for one of his delivery vans that parked illegally.
-Parking ticket of $50 when he parked illegally while attending a rock
concert in Tulsa.
-DUI ticket of $400 while returning from the rock concert.
-Attorney’s fee of $500 associated with the DUI ticket.

What amount can Andrew deduct for these expenses?

Larry, a calendar year cash basis taxpayer, has the following transactions:

Salary from job $60,000
Alimony paid to ex-wife 9,000
Medical expenses 4,500

Based on this information, Larry has:

Payments by a cash basis taxpayer of capital expenditures:

Rex, a cash basis calendar year taxpayer, runs a bingo operation which is illegal under state law. During 2012, a bill designated H.R. 9 is introduced into the state legislature which, if enacted, would legitimize bingo games. In 2012, Rex had the following expenses:


Operating expenses in conducting bingo games $247,000
Payoff money to state and local police 24,000
Newspaper ads supporting H.R. 9 3,000
Political contributions to legislators who support H.R. 9 8,000

Which of the following expenses associated with the illegal sale of whiskey (i.e., bootlegging) can be deducted?

Which of the following cannot be deducted as a § 162 business expense?