71) Toby, owner of a cupcake shop in New York, is considering opening a similar business (i.e., a cupcake shop) in Phoenix. After spending $4,200 investigating such possibilities in Phoenix, Toby decides against opening the store. What is the maximum amount of deduction for the current year attributable to these expenditures?
72) Jones, Inc., a calendar-year taxpayer, is in the air conditioner repair business. The business uses the cash method. In December of the current year, Jones charged $100 of supplies at Refrigeration, Inc., (he will pay the credit card bill in January) and also purchased $600 of supplies at XYZ on open account (he will make a payment on the open account in January). What is the amount that is deductible by Jones, Inc., in the current year?
D) The amounts must be capitalized and charged to expense as used.
73) On August 1 of this year, Sharon, a cash method taxpayer, signs a lease for office space and begins business. The lease is for 3 years. At the time the lease is signed, Sharon pays the $12,600 rent for the entire 36-month lease term. How much can Sharon deduct this year?
74) On December 1, Robert, a cash method taxpayer, borrows $10,000 from the bank for use in his business. Under the terms of the loan, the bank discounts the loan by $300, paying Robert the $9,700 cash proceeds. If Robert repays the loan next year, he may deduct
A) $300 next year.
B) $300 this year.
C) $25 this year and $275 next year.
D) nothing since the note is “noninterest-bearing.”
75) In which of the following situations are points paid on a home mortgage loan not deductible in the year of payment?
76) On August 1 of the current year, Terry refinances her home and borrows $240,000. Terry is required to pay two points on the loan. The loan is secured by the residence and the charging of points is an established business practice in the area. The term of the loan is 20 years, beginning on August 1 of the current year. How much, if any, of the points may Terry deduct in the current year?
77) On July 1 of the current year, Marcia purchases a new home and borrows $320,000. Marcia is required to pay two points on the loan. The loan is secured by the residence and the charging of points is an established business practice in the area. The term of the loan is 20 years, beginning on July 1 of the current year. How much, if any, of the points may Marcia deduct in the current year?
78) Which of the following is not required for an accrual method taxpayer to currently deduct the cost of services received?
A) The liability must be paid.
B) The existence of a liability must be established.
C) The amount of the liability is determined with reasonable accuracy.
D) The services must actually be provided.
79) Which of the following statements is false?
A) A tax deduction is allowed to a taxpayer for estimated warranty expense.
B) A tax deduction is allowed in association with a warranty only in the year in which warranty work is performed.
C) A tax deduction is allowed for a contested amount if the amount is paid prior to final settlement.
D) No tax deduction is allowed to an accrual basis taxpayer for the amount of a down payment for a non-recurring expense when the work is to be performed in a subsequent period.
80) Under the accrual method, recurring liabilities may be deducted currently and paid in the next period if all of the following are present except for
A) the all-events test is met.
B) the expense is recurring.
C) the expense is material.
D) economic performance occurs within the shorter of 8 1/2 months after the close of the year or a reasonable period after the close of the year.