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IRS EA Part 2Free Enrolled Agent — Businesses practice test
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10 real IRS EA Part 2 practice questions with instant answers and explanations — no account, no credit card, no email. Score yourself, then unlock the full bank of 300 questions whenever you’re ready. The IRS EA Part 2 passing score is 105 (scaled 40–130).
Which method of accounting recognizes income when earned and expenses when incurred, regardless of when cash changes hands?
Answer key
All 10 IRS EA Part 2 questions & answers
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Q1. Which method of accounting recognizes income when earned and expenses when incurred, regardless of when cash changes hands?
Correct answer: A. Accrual method
Under the accrual method, income is reported when earned and expenses are deducted when incurred, matching revenue with the period in which the economic event occurs.
Q2. A sole proprietor purchases a delivery van for exclusive use in the business. Which form is used to report the depreciation deduction?
Correct answer: C. Form 4562
Form 4562, Depreciation and Amortization, is used to claim depreciation and Section 179 expense deductions.
Q3. In 2023, a small business places into service $400,000 of qualifying equipment. The business elects to expense the maximum allowable under Section 179, subject to the $1,160,000 dollar limit, with no phase-out since total qualifying purchases for the year are well under the $2,890,000 phase-out threshold. Taxable income before the deduction is $500,000. How much may the business deduct under Section 179?
Correct answer: D. $400,000
The Section 179 deduction cannot exceed the cost of qualifying property placed in service, so the deduction is limited to $400,000 even though both the dollar limit and the taxable-income limit exceed that amount.
Q4. Which of the following is NOT includible in cost of goods sold for a merchandising business?
Correct answer: A. Sales commissions paid to salespeople
Sales commissions are selling expenses deducted as ordinary business expenses, not costs capitalized into inventory or cost of goods sold.
Q5. A calendar-year C corporation purchased and placed in service new 5-year MACRS equipment costing $100,000 on March 1. Using the half-year convention and the 200% declining balance method (20% first-year table rate), what is the first-year depreciation deduction, ignoring Section 179 and bonus depreciation?
Correct answer: D. $20,000
Under the half-year convention for 5-year MACRS property, the first-year table rate is 20%, so $100,000 x 20% = $20,000.
Q6. A partner's basis in a partnership interest is increased by which of the following?
Correct answer: A. The partner's share of partnership liabilities incurred during the year
An increase in a partner's share of partnership liabilities is treated as a deemed cash contribution, which increases outside basis; distributions and guaranteed payments do not increase basis.
Q7. Which of the following business meal expenses is generally deductible at only 50% (absent a temporary full-deduction exception) rather than fully deductible?
Correct answer: C. A business meal with a client while discussing a proposal
Ordinary business meals with clients or business associates are generally limited to a 50% deduction, while meals for the general benefit of all employees at a company event are fully deductible.
Q8. A calendar-year business voluntarily changes its overall method of accounting from cash to accrual with IRS consent, resulting in a net positive Section 481(a) adjustment of $120,000. Absent an election to accelerate, over how many tax years is the adjustment generally taken into income?
Correct answer: B. 4 years
A positive Section 481(a) adjustment from a voluntary accounting method change is generally spread ratably over four tax years, beginning with the year of change.
Q9. A self-employed consultant uses 300 of the 3,000 total square feet of her home exclusively and regularly as her principal place of business. Using the simplified home office method at $5 per square foot (capped at 300 square feet), what is her home office deduction?
Correct answer: D. $1,500
The simplified method allows $5 per square foot up to a maximum of 300 square feet, so 300 x $5 = $1,500.
Q10. Under the uniform capitalization (UNICAP) rules of Section 263A, which of the following small businesses is generally exempt from applying UNICAP to inventory?
Correct answer: A. A retailer with average annual gross receipts of $5 million for the prior three years
Businesses meeting the gross receipts test (average annual gross receipts at or below the inflation-adjusted threshold, e.g., $29 million for 2023) for the three prior tax years are exempt from UNICAP.
Exam facts and objectives sourced from the official IRS (Enrolled Agent / SEE) certification page. Last reviewed June 2026.
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