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HRB-27 Final Exam Review Questions and Answers

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HRB-27 Final Exam Review Questions and Answers What income reporting form should an independent contractor sometimes receive from the person who paid him for his services? - Ans:-Form 1099-MISC (15.6) Schedule C, Line F asks for the accounting method used in the business. What is the differenc...

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  • October 23, 2024
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HRB-27 Final Exam Review Questions
and Answers

What income reporting form should an independent contractor sometimes receive from the person who

paid him for his services? - Ans:✔✔-Form 1099-MISC (15.6)


Schedule C, Line F asks for the accounting method used in the business.


What is the difference between the cash method and the accrual method of accounting? - Ans:✔✔-•

Under the accrual method, total sales and total charges for services are included in income even though

payment may be received in another tax year.


• Under the cash method, only income actually received or expenses actually paid during the year are

included. (15.5)


What does it mean if a proprietor "materially participates" in the business? - Ans:✔✔-He is active in

running the business in a substantial way on a day-to-day basis. (15.5)


Why is it important to know whether or not the proprietor materially participates? - Ans:✔✔-If the

proprietor does not materially participate, any loss from the business is a passive loss and generally may

be currently deducted only against passive income. (15.6)


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What are returns and allowances? - Ans:✔✔-• Amounts that were refunded to customers who returned

merchandise for refund or partial refund.


• These amounts are subtracted from gross receipts. (15.6)


How is cost of goods sold determined? - Ans:✔✔-Beginning inventory plus purchases, plus labor,

supplies, depreciation, etc. attributable to product manufacture or preparation for sale, minus ending

inventory. (15.7)


If the client has contract labor, what should you remind the client that they should do? - Ans:✔✔-•

Provide a Form 1099-MISC to any independent contractor who worked and earned $600 or more. (15.9)


What is the purpose of self-employment tax? - Ans:✔✔-To pay social security and medicare taxes.

(15.14)


What amounts does a proprietor have "at risk"? - Ans:✔✔-Amounts invested in the business plus any

business debts for which the proprietor is personally liable. (15.16)


What difference does it make if the proprietor is "at risk" or not? - Ans:✔✔-Only amounts at risk may be

used to determine the actual loss on Schedule C. (15.16)


How does a Tax Professional meet due diligence requirements? - Ans:✔✔-• Tax Professionals fulfill due

diligence requirements by making every effort to prepare accurate and complete returns.




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• Tax Professionals must have knowledge of tax law, and apply a reasonability check to the information

provided by their clients. (26.1)


What is a thorough interview? - Ans:✔✔-A thorough interview consists of asking general information

questions, then asking additional questions whenever information is incomplete or seems inaccurate or

inconsistent. (26.2)


What is a conflict of interest? - Ans:✔✔-A conflict of interest is when one's situation might benefit at the

expense of another's situation. (26.3)


What actions can resolve a conflict of interest? - Ans:✔✔-A conflict of interest is resolved when it is

acknowledged, disclosed to all parties, and the parties have consented to waiving the conflict. (26.3)


What client information is confidential? - Ans:✔✔-Any information that could potentially identify the

client is confidential.


Information includes (but is not limited to):


• Name


• Address and phone number


• Social security numbers


• Place of employment



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