Question 1: Mr. March, a medical equipment manufacturer, paid and incurred the following expenses during the current year:

Raw materials $60,000

Direct labor 50,000

Materials and supplies 50,000

Freight-in on raw materials 1,000

Freight on shipments of finished goods 1,000

Allocable overhead expenses for production 10,000

Cost of inventory donated to charity 1,000

Fair market value of inventory donated 3,000

Beginning inventory 20,000

Ending inventory 30,000

The inventory donated to charity was included in the beginning inventory and is not eligible for special treatment under Sec. 170(e)(3). What was the amount of Mr. March's cost of goods sold for the current year?

$161,000

$158,000

$159,000

$160,000

Question 2: In XXX1, Walt Sheen purchased and placed in service a packaging machine at a cost of $455,000. He had $37,000 taxable income from his business before considering the deduction allowed under Sec. 179. What is Walt's allowable Sec. 179 deduction for XXX1?

Assume no bonus depreciation is available in XXX1 and Sec. 179 limitation is $500,000.

$37,000

$250,000

$455,000

$112,000

Question 3: On March 1, Year 1, Fred, a cash-basis sole proprietor, leased a dance studio from Swing Room Renters for 3 years at $1,200 per month. During Year 1, Fred paid $28,000 on the lease, and in Year 2 he paid $6,000. What is the amount Fred can deduct on his income tax return for Year 2?

$20,400

$14,400

$11,600

$6,000

Question 4: Dahlia Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($350 per year), or two years in advance ($680). In June 2010, the company collected the following amounts applicable to future services:

July 2010-June 2012 services (two-year contracts)

$ 136,000

July 2010-June 2011 services (one-year contracts)

70,000

Total

$206,000

What amount of advanced payments is included in Dahlia's 2011 gross income?

$103,000

$69,000

$206,000

$137,000

Question 5: (M) Mr. Pine, a self-employed engineer in Boston, traveled to Chicago in order to attend a course on new engineering techniques. He spent 2 weeks attending the course and remained in Chicago for an additional 6 weeks on personal matters. The air flight cost $200, hotel $600, meals $320, and the tuition for the course $500. How much of these expenses may Mr. Pine deduct on his return?

$890

$714

$500

$690

Question 6: (M) On 1/1/XX10 Anna leased a car to use in her "Real Estate Sales" business. The business use percentage for XX10 is 80%. Which statement is correct?

The inclusion amount for a leased automobile is not adjusted by a business usage percentage.

The leased car inclusion amount is calculated based on mileage

The leased car inclusion amount has not changed for the last 10 years

The yearly inclusion amount for a leased auto is defined by Tax Regulations and is adjusted by a business usage percentage.

Question 7: (M) Joe, a cash-basis taxpayer, owned and operated a business. He began having difficulty paying his business debts in late 2010. Joe owed Gail, his computer consultant, $2,200 for services rendered at his business and $500 for non-business services rendered at his home. In 2011, Gail forgave the entire debt of $2,700. Joe is neither bankrupt nor insolvent. What amount will Joe be required to include in income on his tax return for 2011?

$0

$2,200

$500

$2,700

Question 8: (M) Trust Me Company, a sole proprietorship, paid Mr. J, an employee of Trust Me, $35,000 in the current year to compensate him for injuries sustained while at work. The company was reimbursed for $15,000 by its insurance carrier. How much Trust Me can deduct on its current-year income tax return as an ordinary and necessary business expense?

$35,000

$20,000

NONE, as these are NOT ordinary and necessary business expenses

NONE, as Trust Me Company failed to provide safe working conditions for Mr. J and was at fault for Mr. J's injuries

Question 9: (M) Which of the following assets acquired and placed in service in a business in the current year are eligible for MACRS depreciation?

I. Contract to provide services for 5 years

II. Operating license granted by state government

III. Building

IV. Race horse

V. Office equipment

I, II, and III only.

III, IV, and V only.

I, II, III, IV, and V.

II and III only

Question 10: (M) Under the MACRS half-year convention, an asset sold on December 10 will be treated as though it were sold on:

December 31 for a calendar year taxpayer

December 10 for a calendar year taxpayer

December 15 for a calendar year taxpayer

July 1 for a calendar year taxpayer