Concept explainers
Concept Introduction:
A business expense has to go through several tests to get eligible for deduction from business income for tax purposes. These tests are an ordinary and necessary test, business purpose test, and reasonableness test.
To choose: The option that is not a test for deductibility of a business expense.
Answer to Problem 1MCQ
b.
Explanation of Solution
Explanation for Correct answer:
The expectation of profit test is not one of the tests for the deductibility of a business expense. Hence, option b is correct.
Explanations for incorrect answers:
a. The ordinary and necessary test is one of the three tests for the determination of the deductibility of a business expense. Hence this option is incorrect.
c. The reasonableness test is one of the three tests for the determination of the deductibility of a business expense. Hence this option is incorrect.
d. The business purpose test is one of the three tests for the determination of the deductibility of a business expense. Hence this option is incorrect.
Want to see more full solutions like this?
Chapter 3 Solutions
Income Tax Fundamentals 2020 (with Intuit Proconnect Tax Online)
- For purposes of the qualified business income (QBI) deduction, qualified business income does not include certain types of investment income [e.g., capital gains or capital losses, dividends, and interest income (unless properly allocable to a trade or business, such as lending]. True Falsearrow_forwardWhat are the differences between EVA and net profit in accounting?arrow_forwardWhich of the following is not a from AGI deduction? A. The exclusion of an item of gross income B. Itemized deductions, if taken C. Standard deduction, if taken D. The qualified business income deductionarrow_forward
- Fair Value Accounting: Q. How does fair value accounting differ from historical cost accounting? Discuss the advantages and challenges of using fair value in financial reportingarrow_forwardWhich of the following cannot be considered an expense for the business?arrow_forwardexplain how accounting profit and taxable profit differ.arrow_forward
- Which of the following would not overstate current-period net income?a. Capitalizing an expenditure that should be expensed.b. Failing to record a liability as an expense.c. Failing to record a check paying an item in Vouchers Payable.d. All of the above would overstate net income.arrow_forwardHow does the revenue-expense approach differ from the asset-liability approach fordefining accounting elements?arrow_forwardWhat is Fair Value Accounting? What are the factors contributing toward the trend of fair value accounting? How are the balance sheet and income statement affected by fair value accounting? Cite and give credit to the author that you are citing.arrow_forward
- Which of the following may not be an effect of VAT on the accounting records of a company? i. The formation of a payable under the current liabilities ii. An addition to the cost of a purchase iii. The formation of a tax asset arising from a sale iv. A receivable from the government arising from a sale v. All of the other choices may be an effect of VAT.arrow_forwardWhat makes product warranties considered as contingent liabilities? Also, what Generally Accepted Accounting Principle supports how accountants record contingent liabilities?arrow_forward
- Business/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage