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Couldn't confirm presence of Flash 8 or higher because JavaScript was disabled.Get FlashI really do have Flash installed.ul{margin-top:0px;margin-bottom:0px;list-style-type:none;padding-left:20px;}1. Look at the Form 1040 you prepared for Olive Brown. What is the amount on Form 1040, Line 37?

[ ] a. a. $ 21,200.

[ ] b. b. $ 27,327.

[ ] c. c. $ 24,927.

[ ] d. d. $ 27,756.

2. Look at the Form 1040 you prepared for Olive Brown. What is the amount on Form 1040, Line 76?

[ ] a. a. $ 392.

[ ] b. b. $ 820.

[ ] c. c. $ 752.

[ ] d. d. $ -0- refund of $163.

3. You generally must file an income tax return for the year 2007 if your net earnings from self-employment is ____ or more.

[ ] a. a. $ 600.

[ ] b. b. $ 400.

[ ] c. c. $ 300.

[ ] d. d. $ 100.

4. Self-employment tax (SE tax) is a Social security and Medicare tax primarily for individuals who

[ ] a. a. are retired

[ ] b. b. work for an employer

[ ] c. c. work for themselves

[ ] d. d. are disabled.

5. If you and you spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. If you and your wife live in a community property state, you can

[ ] a. a. Use Schedule C or C-EZ.

[ ] b. b. File Form 1065.

[ ] c. c. Treat the business either as a sole proprietorship or a partnership.

[ ] d. d. all of the above

6. If you have employees, you will need to file forms to report employment taxes. Employment taxes include

[ ] a. a. Social security and Medicare taxes.

[ ] b. b. Federal income tax withholding.

[ ] c. c. Federal unemployment (FUTA) tax.

[ ] d. d. All of the above.

7. When you pay out or receive certain payments in your business, you may have to report them to the IRS on information returns. The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. Use Form 1099-Misc., to report certain payments you make in your business, such as

[ ] a. a. Payments of $600 or more for services performed for your business by people not treated as your employees.

[ ] b. b. Rent payments of $600 or more

[ ] c. c. Prizes and awards of $600 or more that are not for services or royalty payments of $10 or more.

[ ] d. d. all of the above

8. Use Form 1099-Misc., to report your sales of consumer goods to a person for resale anywhere other than in a permanent retail establishment for the amount of

[ ] a. a. $ 600 or more

[ ] b. b. $ 400 or more

[ ] c. c. $ 5,000 or more

[ ] d. d. $3,000 or more

9. The annual accounting period for your income tax return is called a tax year. You can use which of the following tax year (s)?

[ ] a. a. a calendar tax year.

[ ] b. b. a fiscal tax year.

[ ] c. c. an adopted tax year.

[ ] d. d. both a and b are correct.

10. You are a self-employed lawyer. You perform legal services for a client, a small corporation. In payment for your services, you receive shares of stock in the corporation. You

[ ] a. a. Must include the fair market value of the shares in income.

[ ] b. b. Cannot include the fair market value of the shares in income.

[ ] c. c. Don't have to report your shares since they have no cash liquid value.

[ ] d. d. None of the above.

11. A calendar year is 12 consecutive months beginning January 1 and ending December 31. You must adopt the calendar tax year if

[ ] a. a. you keep no records.

[ ] b. b. you have no annual accounting period.

[ ] c. c. Your present tax year does not qualify as a fiscal year.

[ ] d. d. Any of the above.

12. You choose an accounting method for your business when you file your first income tax return that includes a Schedule C for the business. You can use the cash method, the accrual method, special methods, or a combination method using elements of two or more methods. Whichever method you use, it has to be a method that

[ ] a. a. is used to figure personal items.

[ ] b. b. is special method of accounting for certain items of income and expenses.

[ ] c. c. Clearly shows all of your expenses.

[ ] d. d. Clearly shows your income.

13. Under this method of accounting, you include in your gross income all items of income you actually receive and deduct expenses in tax year in which you actually pay them.

[ ] a. a. hybrid method.

[ ] b. b. accrual method.

[ ] c. c. cash method.

[ ] d. d. special method.

14. Under this method of accounting, you include income in gross income in the year earned and deduct expenses in the year incurred. The purpose is to match income and expenses in the correct year.

[ ] a. a. hybrid method.

[ ] b. b. accrual method.

[ ] c. c. cash method.

[ ] d. d. special method.

15. You use the cash method of accounting. You receive a valid check by the end of tax year 2007. With all the holiday shopping and celebrations, you did not have time to cash or deposit the check until tax year 2008. What tax year is this money for?

[ ] a. a. you report money as received in tax year 2007.

[ ] b. b. you report money as received in tax year 2008.

[ ] c. c. you can choose to report your money in 2007 or 2008 because you received it towards the end of the year.

[ ] d. d. the check was valid but since you were not able to cash it until 2008, you report the money for tax year 2008.

16. When an amount is credited to your bank account or is made available to you without restriction. You do not need to have possession of it. If you authorize someone to be your agent and receive income for you, you are treated as having received it when your agent received it. This is called

[ ] a. a. Restriction receipt.

[ ] b. b. Cash receipt.

[ ] c. c. Constructive receipt.

[ ] d. d. Instant receipt.

17. If you are self employed as a sole proprietor or are an employee who received a 1099-misc instead of a W-2 or you are considered an independent contractor, use Schedule C or C-EZ (Form 1040) to figure your earning subject to SE tax. You must pay self-employment tax and file Schedule SE (Form 1040) if your net earnings from self-employment were

[ ] a. a. $600.00 or more.

[ ] b. b. $400.00 or more.

[ ] c. c. $1,000.00 or more.

[ ] d. d. None of the above.

18. Generally, if you produce, purchase, or sell merchandise in your business, you must keep an inventory and use the accrual method for purchases and sales of merchandise. However, if you are a qualifying small business taxpayer you can use the cash method of accounting even if you produce, purchase or sell merchandise. You are a qualifying small business taxpayer only if in 3 years your average annual gross receipts were

[ ] a. a. More than $1,000 but less than $1,000,000.

[ ] b. b. Less than $1,000,000.

[ ] c. c. More than $1,000,000 but less than $10,000,000.

[ ] d. d. Less than $100,000.

19. In some cases, money or property received is not income. The following is an example of an item that is not income.

[ ] a. a. Loans.

[ ] b. b. Sales tax.

[ ] c. c. Consignments.

[ ] d. d. All of the above.

20. If there is a connection between any income you receive and your business and it is clear that the payment of income would not have been made if you did not have the business, then

[ ] a. a. the income is business income.

[ ] b. b. the income is not business income.

[ ] c. c. the income is not taxable.

[ ] d. d. the income needs to be capitalized.

21. You are a self-employed painter. You painted a house for a client. The client was unable to pay you and in return you took his refrigerator because you knew he was never going to pay you. The refrigerator was almost new and besides it was loaded with food. You figured the fair market value of the fridge was in the ball park of the amount he owed you for painting his house. You must

[ ] a. a. include the fair market value of the refrigerator (and food) as income.

[ ] b. b. not include the fair market value of the refrigerator (and food) as income.

[ ] c. c. still demand payment because the refrigerator is no considered proper pay.

[ ] d. d. none of the above

22. Generally if your debt is cancelled or forgiven, other than as a gift or bequest to you, you must

[ ] a. a. not do anything because a cancelled debt is not considered taxable income.

[ ] b. b. include the cancelled debt amount in you gross income for tax purposes.

[ ] c. c. wait to see if you receive a letter from the IRS, if you don't that means that you are not selected to report the cancelled debt.

[ ] d. d. report the cancelled debt only if you filed bankruptcy.

23. If you are in a retail or wholesale business, you can check the accuracy of your gross profit figure. To do this you would

[ ] a. a. Divide gross profit by net receipts.

[ ] b. b. Compare this percentage to your markup policy.

[ ] c. c. Determine the reason for the difference.

[ ] d. d. All of the above, in that order.

24. If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. However, to determine these costs, you must

[ ] a. a. Value your inventory at the beginning of the year.

[ ] b. b. Value your inventory at the end of the year.

[ ] c. c. Compare your business to your competition.

[ ] d. d. Both a and b are correct.

25. You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income in the first place. This method of accounting would be the

[ ] a. a. accrual method.

[ ] b. b. cash method.

[ ] c. c. personal method.

[ ] d. d. business method.

26. You can generally deduct as a business expense all interest you pay and accrue during the tax year on debts related to your business. Interest relates to your business if you use the proceeds on the loan for a business expense. You can deduct interest on a debt only if

[ ] a. a. You are legally liable for that debt.

[ ] b. b. Both you and the lender intend that the debt be repaid.

[ ] c. c. You and the lender have a true debtor-creditor relationship.

[ ] d. d. All of the above.

27. Your are a direct newspaper carrier or distributor and your earnings are subject to SE tax if

[ ] a. a. You are in the business of delivering or distributing newspapers or shopping news.

[ ] b. b. Substantially all your pay for these services directly relates to your sales rather than to the amount of hours you work.

[ ] c. c. You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes.

[ ] d. d. all of the above.

28. Heather owns Copies Done Right. Her net profit from her business is $102,000 for tax year 2007. Her SE tax (including Medicare part) is

[ ] a. a. $ 14,918.

[ ] b. b. $ 14,412.

[ ] c. c. $ 15,606.

[ ] d. d. $ 12,090.

29. The following items are considered business income, except

[ ] a. a. Bartering.

[ ] b. b. Cancelled debts.

[ ] c. c. Advance payments with no restrictions on use or enjoyment.

[ ] d. d. Sales tax.

30. People who are in an independent trade, business, or profession in which they offer their services to the general public such as doctors, dentists, lawyers, accountants, contractors and subcontractors are generally independent contractors. The general rule is that an individual is an independent contractor if the payer

[ ] a. a. Has the right to control or direct the way the work is done.

[ ] b. b. Pays him/her on a weekly basis or any other pay period.

[ ] c. c. Has the right to control or direct only the result of the work and not how it will be done.

[ ] d. d. None of the above.

31. Look at the Form 540 you prepared for Olive Brown. What is the amount on Form 540, Line 17?

[ ] a. a. $ 24,927.

[ ] b. b. $ 27,327.

[ ] c. c. $ 21,200.

[ ] d. d. $ 27,756.

32. Look at the Form 540 you prepared for Olive Brown. What is the amount on Form 540, Line 66?

[ ] a. a. $ 196.

[ ] b. b. $ 40.

[ ] c. c. $ 100.

[ ] d. d. $ 84.

33. Adjustments to federal business income or loss you reported in Column A generally are necessary because of the difference between California and federal law relating to depreciation methods, special credits, and accelerated write-offs.

[ ] a. True

[ ] b. False

34. The recovery period or basis used to figure California depreciation may be different from the amount used for federal purposes.

[ ] a. True

[ ] b. False

35. Use FTB 3801, Passive Activity Loss Limitations, to figure the total adjustment for 12 if you have

[ ] a. a. One or more passive activities that produce a loss.

[ ] b. b. Any non-passive activity reported on federal Schedule C.

[ ] c. c. One of more passive activity that produce a gain.

[ ] d. d. Both A and B above.

36. Use FTB Form 3885A to figure the total adjustment for line 12 if you have

[ ] a. a. Only non-passive activities which produce either gains or losses.

[ ] b. b. Only non-passive activities which produce a combination of gains or losses.

[ ] c. c. Passive activities that produce gains.

[ ] d. d. All of the above.

37. California law is the same as federal law with exception of

[ ] a. a. Self-employed Health Insurance Deduction.

[ ] b. b. Total IRA distributions.

[ ] c. c. Capital Gain or (loss).

[ ] d. d. All of the above.