CPA Regulation (REG) : Deductible & Non-Deductible Corporate Expenses
Study concepts, example questions & explanations for CPA Regulation (REG)
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Example Questions
Example Question #11 : Corporate Income Tax Deductions
In the case of a corporation that is not a financial institution, which of the following statements is correct with regard to the deduction for bad debts?
If the reserve method was consistently used in prior years, the corporation may take a deduction of a reasonable addition to the reserve for bad debts.
Either the reserve method or the direct charge-off method may be used, if the election is made in the corporation’s first taxable year.
On the approval form the IRS, a corporation may change its method from direct charge-off to reserve.
A corporation is required to use the direct charge-off method rather than the reserve method.
A corporation is required to use the direct charge-off method rather than the reserve method.
Accrual-basis taxpayers (which includes corporations) are required to use the specific charge-off (aka direct charge-off) method for tax purposes. This does not preclude a corporation from using the reserve method for financial reporting purposes, as required.
Example Question #1 : Deductible & Non Deductible Corporate Expenses
What is the maximum amount of capital losses in excess of capital gains that a C corporation may deduct in a year?
$3,000
$10,000
$5,000
$0
$0
For C corporations, capital losses may only be deducted to the extent of capital gains in a given year. Excess capital losses may, however, be carried back three years or forward five (again, only to the extent of capital gains in those years).
Example Question #12 : Corporate Income Tax Deductions
Funnie, Inc. manufactures consumer products and sells them to distributors. Funnie advertises its products to increase sales and enhance the value of its trade name. What is the appropriate treatment for the advertising costs?
Deduct the costs currently as ordinary and necessary business expenses
Amortize the costs over 36 months
Amortize the costs over 15 years
Amortize the costs over 60 months
Deduct the costs currently as ordinary and necessary business expenses
Advertising expenses are treated as those incurred in the normal course of business, and for tax purposes are expensed in the period the costs are incurred. There is no amortization of these costs.
Example Question #13 : Corporate Income Tax Deductions
ABC Corp, a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant and the reimbursement is not treated as wages subject to withholdings. What percentage of meal expenses may ABC deduct?
0%
50%
100%
80%
50%
Only 50% of meal expenses are deductible.
Example Question #2 : Deductible & Non Deductible Corporate Expenses
A corporation’s penalty for underpaying federal estimated taxes is:
Fully deductible in the year paid
Fully deductible if reasonable cause can be established for the underpayment
Partially deductible
Not deductible
Not deductible
The penalty for underpayment of federal estimated taxes is not deductible.
Example Question #13 : Corporate Income Tax Deductions
ABC Corp, a calendar year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant and the reimbursement is not treated as wages subject to withholdings. What percentage of meal expenses may ABC deduct?
50%
80%
0%
100%
50%
Only 50% of meal expenses are deductible.
Example Question #1 : Deductible & Non Deductible Corporate Expenses
A corporation’s penalty for underpaying federal estimated taxes is:
Fully deductible in the year paid
Partially deductible
Fully deductible if reasonable cause can be established for the underpayment
Not deductible
Fully deductible in the year paid
The penalty for underpayment of federal estimated taxes is not deductible.
Example Question #3 : Deductible & Non Deductible Corporate Expenses
For a C Corporation, _____ are able to be expensed or amortized during the organizational process.
Underwriter commissions
Costs associated with issuing company stock
All of the above
Legal fees associated with charter drafts
Legal fees associated with charter drafts
Stock sale costs cannot be expensed or amortized during the organizational period, only legal fees necessary to form the company.
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