1. For tax year 2010, farm income averaging may be elected as a tax computation method:
A. Only before March 1 of the year following the end of the tax year.
B. Even
if the time for filing a claim has expired for that election year.
C.
After the due date of the return, such
as an IRS audit adjustment.
D. Only
if you were engaged in farming in the election year and all of the base years.
2. Leonard Brown operated a cattle and grain farm in 2010. Leonard sold $42,000 of grain and $23,000 of cattle held for breeding purposes. Leonard also received patronage dividends from the local feed store of $432, feed assistance payments of $1,200, and $1,500 for haying and caring for his neighbor's cattle. Leonard should report the following on Schedule F of his federal income tax return for 2010:
A. $45,132.
B. $67,700.
C. $44,700.
D. $66,932.
3. John Jacobsen is a cash basis cattle rancher. In 2010, John sold 12 head of cattle for $9,600. The cattle were born on his ranch in 2007. During the 3 years that John used these cattle in his breeding operation, he spent and deducted $10,000 for feed and other expenses related to the cattle. How much is John's gain or loss for 2010, and where should he report the amount on his Federal income tax return?
A. John should report a net gain of $9,600 on Part I, Form 4797.
B. John
should report a net loss of $400 on Part I, Form 4797.
C.
John should report $9,600 from the sale of the cattle on Part I, Schedule F.
D.
John should report a net loss of $400 on Part I, Schedule F.
4. If at least two-thirds of your gross income for 2009 or 2010 was from farming, only one estimated tax payment is due. The required annual payment is the:
A. Larger of two-thirds of your total tax for 2010 or 100% of the total tax
shown on your full-year 2009 return.
B.
Smaller of two-thirds of your total tax for 2009 or 100% of the total tax shown
on your full-year 2010 return.
C.
Larger of two-thirds of your tax for 2009 or 100% of the total tax shown on your
full-year 2010 return.
D.
Smaller of two-thirds of your total tax for 2010 or 100% of the total tax shown
on your full-year 2009 return.
5. Farmer Bob sold a breeding cow on March 8, 2010 for $2,500. Expenses related to the sale were $250. Farmer Bob deducted $1,000 in costs of raising the cow during the years the cow was raised. What is Farmer Bob's gain (loss) on the sale of the breeding cow, without regard to the Uniform Capitalization Rules?
A. $(350).
B.
$1,150.
C.
$2,250.
D.
None of the above.
6. Farmer Judy is a calendar-year taxpayer who uses the cash method of accounting. She normally sells 200 head of sheep a year. Because of a drought, she sold 250 head of sheep in 2010. Farmer Judy realized $50,000 from the sale. The affected area was declared a disaster area eligible for federal assistance on March 12, 2010. How much, if any, income can Farmer Judy postpone to 2011?
A. $10,000.
B.
$50,000.
C.
$12,500.
D.
$0, since only sales because of flooding quality for postponement.
7. The receipt of Agricultural Program Payments by a farmer for refraining from growing crops should be reported as:
A. Miscellaneous income on Form 1040.
B. Farm
income, not subject to self-employment tax.
C.
Rental income, not subject to self-employment tax.
D.
Farm income, subject to self-employment tax.
8. In November of 2009, Farmer Smith, a cash basis taxpayer, sells 100 additional beef feeder cattle (raised for resale) due to severe lack of water in his area. Normally, these feeders sell in February 2010. The transaction is correctly reported:
A. In 2009 as a capital gain or loss.
B. In 2010
as a capital gain or loss.
C.
Upon election, as ordinary farm income in either 2009 or 2010.
D. Not
taxable due to drought conditions.
9. Dan, a calendar year taxpayer, has the following amounts of gross income for 2010:
| * Wages | $10,000 |
| * Interest | $2,000 |
| * Farm Income | $200,000 |
Dan has tax, including self employment tax, of $20,000, and withholding of $1,000. To avoid any filing or estimated tax penalties, Dan must:
A. File an estimated tax payment by January 18, 2011,
or file his return and pay the tax by March 1, 2011.
B.
File his tax return and pay all tax due by March 2, 2011.
C.
File an estimated tax payment by March 1, 2011, and pay 66 2/3% of the tax due.
D.
File his tax return and pay all tax due by April 15, 2011.
10. Farm income averaging is computed on Schedule J, which may be filed:
A. For the current year when a taxpayer files Schedule F showing a farm loss.
B. By allocating it to the 3 prior years
(base years).
C. Only by the IRS after the taxpayer's return is completed and reviewed.
D. On a family farming corporation with less than $25 million in gross receipts.
11. A farmer has the following sources of income:
| * Milk sales | $100,000 |
| * Sales of old dairy cows | $12,000 |
| * Agricultural Program Payments | $30,000 |
| * Sales of calves raised for sale | $2,000 |
| * Corn sales | $24,000 |
| * Tractor sold | $7,000 |
The income to be reported on Schedule F, "Profit or Loss from Farming", is:
A. $175,000.
B.
$156,000.
C.
$168,000.
D.
$163,000.
12. Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization. It includes all of the following types of property, except:
A. Office equipment.
B. Client filing cabinets.
C. Building elevator.
D. Storage facilities used in distributing petroleum.
13. If you sell more livestock than you normally would in a year because of a drought, flood, or other weather related condition, you may be able to postpone reporting the gain from selling the additional animals until the next year. You must meet all of the following conditions to make the election except:
A. You can show that, under your usual business practices, you would not have
sold the animals this year except for the weather-related conditions.
B. The weather-related conditions caused an area to be designated as eligible for
assistance by the federal government.
C. You use the accrual method of
accounting.
D. Your principal trade or business is farming.
14. Qualified farmers have the following choices to file their tax return without incurring any penalties:
A.
File and pay 100% of the tax due by March 1 each year.
B. File one estimated payment for two-thirds of the tax by January 18 and file
and pay the balance by April 15.
C. File and pay the tax due by April 15 each year.
D.
Both A and B above.
15. A farmer sold a 3-year old dairy cow for $600. It cost him $75 for shipping and commissions to sell the cow. He reports this sale as follows on his tax return:
A. A
loss of $700 on his Schedule F because he believed it cost him $1,300 to raise
the dairy cow.
B. A Section 1245 gain of $525 reported on Form 4797 Part III.
C. A gain of $525 reported on Schedule F as ordinary farm income.
D. A
Section 1231 gain of $525 reported on Part I of Form 4797.
16. Sandy had the following total gross income for 2010:
| Taxable interest $45,000. |
| Dividends $1,000. |
| Rental income for the use of her farmland $1,500. |
| Farm income (Schedule F) $75,000. |
| Gain from sale of farm animals $5,000. |
How much of Sandy's gross income qualifies as gross income from farming?
A. $75,000.
B. $80,000.
C. $81,500.
D.
$127,500.
17. You are in the business of farming if you
A.
Cultivate a farm for profit.
B.
Operate a farm for profit.
C.
Manage a farm for profit.
D.
Any
of the above.
18. Everyone in business, including farmers, must keep appropriate records. Recordkeeping will help you
A.
Monitor the progress of your farming business.
B.
Prepare your financial statements and tax returns.
C.
Identify the source of receipts and keep track of deductible expenses.
D. All
of the above.
19. You can choose any recordkeeping system suited to your farming business that clearly shows your income and expenses.
True False
20. Use this Schedule to figure the net profit or loss from regular farming operations. Income from farming includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. Report your farm income on
A.
Schedule C (Form 1040).
B.
Schedule F (Form 1040).
C.
Schedule E (Form 1040).
D.
None of the above.
21. You can use income averaging to figure your tax for any year in which you were engaged in a farming business as
A. An
individual.
B. A partnership.
C. An S corporation.
D. Any
of the above.
22. If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year. To qualify
A.
Your principal trade or business must be in farming and you must use the cash
method of accounting.
B.
You must show that, under your usual business practices, you would not have sold
or exchanged the additional animals this year except for the weather-related
condition.
C.
The weather-related condition caused an area to be designated as eligible for
assistance by the federal government.
D.
All of the above.
23. You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. If you have not yet established a usual business practice,
A.
Rely on the usual business practices of
similarly situated farmers in your general region.
B.
Rely on the business practices stated in the IRS journal of business practices.
C.
Take into account your sales in an earlier year.
D.
Considerer all the facts and circumstances by taking into account your sales in
the previous three years.
24. Generally, losses of raised draft, breeding, dairy, or sporting animals do not result in deductible casualty or theft losses because you have no basis in the animals. However, you may have a basis in the animal and therefore may be able to claim a deduction if
A.
You us inventories to determine your income and you include the animals in your
inventory.
B.
You capitalized the expenses associated with the animals under the uniform
Capitalization rules and therefore have a tax basis in the animals subject
to a casualty or theft.
C.
Either A or B above.
D.
You do not use inventories to determine your income.
25. The amount of income from your farming business that your elect to have taxed at base year rates is
A.
Farmer income averaging (FIA).
B.
Elected Farming Income (EFI).
C.
Other Source Income (OSI).
D.
None of the above.
26. If you (or your partnership or S corporation) liquidate your farming business, gains on property sold within a reasonable time after operations stop can be designate as EFI.
True False
27. Prepaid farm supplies are amounts paid during the tax year for
A.
Feed, seed, fertilizer, and similar farm supplies not used or consumed during
the year.
B.
Poultry (including egg-laying hens and baby chicks) bought for use (or for both
use and resale) in your farm business.
C.
Poultry bought for resale and not resold during the year.
D.
Any of the above.
28. You are a farm-related taxpayer if
A. Your
main home is on a farm.
B. Your
principal business is farming.
C. A
member of your family's main house is on a farm or his or her principal business is
farming.
D. Any
of the above.
29. If you report your income and expenses under the cash method of accounting, your cannot deduct in the year paid the cost of feed your livestock will consume in a later year unless
A. The
payment is for the purchase of feed rather than a deposit.
B.
The prepayment has a business purpose and is not merely for tax avoidance.
C.
Deducting the prepayment does not result in a material distortion of your
income.
D.
All of the above.
30. Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. It is for the purchase of feed if your can show you made it under a binding commitment to accept delivery of a specific quantity of feed at a fixed price and you are not entitled to a refund or re-purchase. The following can show it is a payment for the purchase of feed.
A. The
absence of specific quantity terms.
B.
The right to substitute other goods or products for those specified in the
contract.
C.
The right to a refund on any unapplied payment credit at the end of the
contract.
D.
None of the above.
31. If you withhold social security, Medicare, and income taxes from your employees' cash wages, you can still deduct the full amount of wages before withholding. Deduct the employer's share of the social security and Medicare taxes you must pay on your employee's wages as a farm business expense on
A.
Schedule C line 2.
B.
Schedule F line 31.
C.
Form 1040 line 12.
D.
None of the above.
32. You can deduct reasonable wages or other compensation you pay to your spouse if a true employer-employee relationship exists between you and your spouse. Wages you pay to your spouse are not subject to social security and Medicare taxes.
True False
33. You can deduct one-half of your self-employment tax in figuring your adjusted gross income on
A.
Form 1040, line 56.
B.
Schedule F line 31.
C.
Form 1040 line 12.
D.
None of the above.
34. You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. This does not include
A.
Health and accident insurance on your farm employees.
B. A
policy on your life or on the life of another person with a financial interest
in your farm business to get or protect a business loan.
C.
Use and occupancy insurance and business interruption insurance premiums.
D.
Fire, storm, crop, theft, liability, and other insurance on farm business
assets.
35. If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses.
True False
36. If you rent a farm, do not deduct the part of the rental expenses that represents the fair rental value of the farm home in which you live.
True False
37. You can deduct the actual cost of operating a truck or car in your farm business. Only expenses for business use are deductible. These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation. Instead of using actual costs, under certain conditions you can use the standard mileage rate. For 2010, the rate is
A. 50.5 cents a mile for all business miles driven for the period January 1
through June 30, 2010.
B. 58.5 cents a mile for all business miles driven for the period July 1 through
December 31, 2010.
C. 50 cents a mile for all business miles driven.
D. Both A and B above.
38. You can claim 75% of the use of a car or light truck as business use without any records if you used the vehicle during most of the normal business day directly in connection with the business of farming. You choose this method of substantiating business use the first year the vehicle is placed in service. A use directly connected with the business of farming is
A.
Cultivating land.
B.
Raising or harvesting any agricultural or horticultural commodity.
C.
Driving to the feed or supply store.
D. Any
of the above.
39. You can claim 75% of the use of a car or light truck as a business use without any records if you used the vehicle during most of the normal business of farming. If you keep records and they show that your business use was more than 75%, you may be able to claim more.
True False
40. If you were the landowner (or sub-lessor) and did not materially participate in the operation or management of the farm
A. Report
farm rental income based on crops or livestock produced by the tenant.
B.
Report farm rental income only based on crops or livestock produced by you.
C.
Report only if the tenant had rental activity for purposes of the passive
activity loss limitations.
D. Use
Form 4835 only if you were in a partnership or S corporation with rental income
and expenses from crop and livestock shares.
41. If you produced real or tangible personal property or acquired property for resale, certain expenses may have to be included in inventory costs or capitalized but do not include the direct costs of the property and the share of any indirect costs allocable to that property.
True False
42. If you and your spouse jointly owe and operate a farm as an unincorporated business and share in the profits and losses, you each
A. Can
be taxed as a partnership and file Form 1065.
B.
Can file Schedule F as a qualified joint venture.
C. Either
A or B above.
D.
Have to decide who will pay the social security and self employment tax on that
farm.
43. If you and your spouse each materially participate as the only members of a jointly owned and operated farm, you can elect to be treated as a qualified joint venture instead of a partnership if you
A. File
a joint return for the year.
B.
File a separate return for the year.
C.
File Head of Household for the year.
D. Any
of the above.
44. To make a joint venture election for your jointly owned and operated farm, you must divide all items of income, gain , loss, deduction, and credits attributable to the farming business between you and your spouse in accordance with your respective interests in the venture.
True False
45. Use Schedule J (Form 1040) to elect to figure your 2010 income tax by averaging, over the previous 3 years (base years), all or part of your 2010 taxable income from your trade or business of farming or fishing. In order to qualify for this elections, you
A. Are
required to have been in the business of farming or fishing during all base
years.
B.
Are not required to have been in the
business of farming or fishing during any of the base years.
C. Are
required to have the same filing status in the election year and the base years.
D.
Have to re-compute, because of this election, the tax liability of any minor
child who was required to use your tax rates in the prior years.
46. A farming business does not include
A.
Operating a nursery or sod farm.
B.
Leasing land to a tenant engaged in a farming business if the lease payments are
based on a share of the tenant's production.
C. Contract
harvesting of an agricultural or horticultural commodity grown or raised
by someone else or merely buying or reselling plants or animals grown or raised
by someone else.
D.
Raising ornamental trees.
47. You will be treated as engaged in a fishing business with respect to any qualified settlement income if
A. You
were a plaintiff in the Civil Action In re Exxon Valdez litigation.
B.
You were a beneficiary or spouse or an immediate relative of a plaintiff in the
Civil action In re Exxon Valdez litigation.
C. You
acquired the right to receive qualified settlement income from a plaintiff in
the Civil action In re Exxon Valdez litigation.
D.
All of the above.
48. A tenant farmed part of your land under a crop-share arrangement. The tenant harvested and delivered the crop in your name to an elevator company. Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. They sell their crop shares in the following year and the elevator company makes payments directly to your children. In this situation,
A. You
are considered to have received rental income and then made a gift of that
income.
B.
You must include the fair market value of the crop shares in your income for the
tax year you gave the crop shares to your children.
C. Both
A and B above.
D.
Your children are considered to have received rental income because you made a
gift of that income.
49. If you receive feed assistance and payments from a program that provides feed assistance, include in income
A. The
market value of donated feed.
B.
The difference between the market value and the price you paid for feed you buy
at below market prices.
C. Any
cost reimbursement you receive.
D.
All of the above.
50. For social security and Medicare tax purposes, the crew leader is the employer of the workers if
A. The
crew leader pays (either on his or her own behalf or on behalf of the farmer)
the workers for their farm labor.
B.
The crew leader has not entered into a written agreement with the farmer under
which the crew leader is designated as an employee of the farmer.
C. The
crew leader entered into a written agreement with the farmer under which the
crew leader is designated as an employee of the farmer.
D. Both
A and B above.
51. If the crew leader is the employer for social security and Medicare tax purposes, the crew leader is the employer for federal income tax withholding purposes.
True False
You will need IRS Publication 538 to complete the following.
52. Which of the following statements is NOT correct?
A. Under an accrual method of accounting, you generally report income in the
year earned and deduct or capitalize expenses in the year incurred.
B. Under
an accrual method of accounting, you generally report receipt of an advance
payment for services to be performed in a later tax year as income in the year
you receive the payment.
C.
Under an accrual method of accounting, business expenses and interest owned to a
related person who uses the cash method of accounting are deductible when the
all-events test has been met.
D.
Under an accrual method of accounting, you can take a current deduction for
taxes when economic performance occurs.
53. Which of the following in NOT an acceptable inventory practice?
A. You claim a casualty or theft loss of inventory through the increase in the
cost of goods sold by properly reporting your opening and closing inventories.
B. To property value inventory at cost, reduce the invoice price of inventory by
a trade discount.
C.
Under the lower of cost or market method, compare the market value of each item
on hand on the inventory date with its cost and use the lower of the two as its
inventory value.
D. To properly value inventory
at cost, include only the direct costs associated with each item.
54. Mary is a calendar year, accrual basis taxpayer. She sold merchandise on December 30, 2010. She billed the customer in the first week on January, 2011. The billing was returned for insufficient postage and Mary sent a second bill in February, 2011. When should Mary include the sale in income?
A. January, 2011.
B.
March, 2011.
C.
December, 2010.
D.
February, 2011.
55. A partnership, S corporation or personal service corporation can elect to use a tax year other than its required tax year, if it:
A. Elects a year that meets the deferral period requirement.
B. Is
not a member of a tiered structure as defined by the regulations.
C.
Has not previously had an election in effect to use a tax year other than its
required tax year.
D. All
of the above.
5. Eric, a cash basis taxpayer, owned 25% of Watson, Inc. stock. Watson, Inc. files a calendar year U.S. Corporate Income Tax Return Form 1120 employing the accrual method of accounting. Eric loaned Watson, Inc. $100,000 at the beginning of 2009. The accrual interest on this loan was $5,000 as of December 31, 2009. Watson, Inc. paid Eric the $5,000 in January of 2010. How should Eric report the interest income and Watson, Inc. report the interest expense from this transaction?
A. Watson, Inc. reports the expense in 2009 and Eric reports the income in 2009.
B.
Watson, Inc. reports the expense in 2009 and Eric reports the income in 2010.
C.
Watson, Inc. reports the expense in 2010 and Eric reports the income in 2010.
D.
None of the above.
6. Mark is an accrual basis taxpayer. He shipped $500 worth of merchandise to Ralph on December 30, 2010. Mark sent Ralph an invoice January 2, 2011 that was payable in 30 days. Ralph mailed his check to Mark on February 2, 2011. Mark deposited the check on February 6, 2011. Mark received and reconciled his bank statement March 3, 2011. When does Mark record the $500 in income?
A. January 2, 2011 because that is when he invoiced Ralph.
B.
March 3, 2011 because that is when Mark verified that the $500 check had been
accepted as a deposit.
C.
December 30, 2011, the date when he shipped the merchandise to Ralph.
D.
February 6, 2011 because that is when Mark deposited the check from Ralph.
7. Which of the following items are generally included in inventory?
A. Goods for sale that someone else has consigned to you.
B.
Equipment used in your business to manufacture goods.
C.
Goods you have sent out on consignment for someone else to sell.
D.
Goods in transit to you for which title has not yet passed to you.
8. New ABC Partnership is organized in 2010 with three general partners. The partners include a corporation with a tax year ending on March 31 and a 60% interest in partnership capital and profits, and two individuals, each having a calendar tax year and a 20% interest in partnership capital and profits. The partnership's required tax year ends on:
A. March 31.
B.
September 30.
C.
October 31.
D. December
31.
9. Given the fact patterns below, which of the following entities may not use the cash method of accounting?
A. The Acme Partnership had gross receipts of $3,500,000 in 2010. Its gross
receipts for 2007 were $8,000,000 and its gross receipts for 208 were
$3,000,000.
B. John
Jones manufactures and sells fans. His average annual gross receipts since 206
are $975,000.
C.
Dallas Partnership has two partners in
2010 - Joe Dallas, an individual, and
Deer, Inc. a corporation. Dallas Partnership averaged annual gross receipts are
$6,500,000.
D. John
Gibb files his 2010 Form 1040 with an attached Schedule C reflecting $11,000,000
in gross receipts from selling real estate.
10. Under the "lower of cost or market" method, what is the value of the following items that should be included in closing inventory?
A. $800.
B.
$1,000.
C.
$1,050.
D.
$1,250.
11. Jim is a cash basis taxpayer and is an electrician. He received the following in 2010:
| * Schedule C income of | $25,000. |
| * Rental receipts of | $6,000. |
| * 2009 advanced lease payments received in December, 2010, | $1,000. |
| * Dividend income | $500. |
| * A 2009 personal bad debt recovery of | $1,000. |
| * $1,500 worth of electrical work in exchange for his friend installing a sprinkler system for him with a fair market value of | $1,500. |
How much does Jim have to report in his income for 2010?
A. $34,000.
B.
$35,000.
C.
$33,000.
D.
$31,000.
12. Abraham becomes an equal partner in the Kit, Kat and Kidd Partnership in 2010. In 2009, he filed his personal tax return on the calendar tax year basis. The partnership reports income and expenses on the fiscal tax year basis. How should Abraham report partnership income or loss distributed to him?
A. Abraham may choose a fiscal year to report income and expenses.
B.
Abraham must report income and expenses on the calendar year basis.
C.
Abraham may choose either a calendar tax year or fiscal tax year to report
income and expenses.
D.
Abraham may choose a fiscal tax year and later obtain IRS approval if he wishes
to change to a calendar tax year for reporting income and expenses.
13. The Kilometer Partnership sells computers and maintains its accounting system on the accrual basis. Kilometer sold and delivered a computer on December 29, 2009 and billed the customer $3,250 on January 7, 2010. Kilometer received the $3,250 payment on February 15, 2010. The check cleared on February 22, 2008. On which date will Kilometer recognize this income?
A.
January 7, 2010.
B. February 15, 2010.
C. December 29, 2009.
D.
February 22, 2010.
14. The following methods of accounting for inventory are considered acceptable, except:
A.
Cost.
B. First In First Out.
C. Last In First Out.
D.
Trade Discount Method.
15. Jeremiah, a cash basis taxpayer, is a salesman. He sold $100,000 of merchandise in March 2009. His commission is 2% of sales. In November 2009, he received $2,000 in commissions for those sales and an advance of $7,000 in commissions for future sales in 2010. What amount must John include in his income for 2010?
A.
$9,000.
B. $2,000.
C. $3,167.
D.
$0.
16. Which of the following dates would not be considered the end of a tax year?
A.
The Last Friday in June.
B. September 30, 2010.
C. April 15, 2010.
D.
December 31, 2010.
17. Which of the following accounting methods in not an acceptable method of reporting income and expenses?
A. If an inventory is necessary to account for your income, you must use an
accrual method for purchases and sales. You can use the cash method for all
other items of income and expenses.
B. If you the cash method for figuring your income, you can use the accrual
method for figuring your expenses.
C. Any combination that includes the cash method is treated as the cash method.
D. You
can use different accounting methods for reporting business and personal items.
18. Phil and Don are equal partners in the Hilldale Company. Hilldale has a fiscal year ending on January 31. Phil and Don file their individual tax returns on a calendar year basis. For the tax year ending January 31, 2010, Hilldale had taxable income from the active conduct of its business of $100,000 of which $60,000 was earned in 2009. How much of their partnership taxable income should Phil and Don each include in computing their taxable income limit for the 2010 tax year?
A. $50,000.
B. $20,000.
C. $30,000.
D. $0.
19. The Foster & Graves Partnership values its inventory under lower of cost or market value method. Under this method, what is the value of the ending inventory?
| Item | Cost | Market |
| M | 150 | 175 |
| N | 175 | 180 |
| 0 | 220 | 200 |
A. $525.
B. $555.
C. $545.
D.
$520.
20. A taxpayer suffered an $11,000 loss of inventory when his cooler malfunctioned. He had no insurance for this type of loss. He shows this loss on his tax return by:
A. Taking a bad debt deduction of $22,000, the amount he would have sold the
inventory for.
B. Taking an ordinary loss on Form 4797 of $11,000.
C. Taking a business loss on his Schedule C as reflected by an increase of
$11,000 in cost of goods sold.
D. Taking a loss of $11,000 as a bad debt on Schedule D.
