Question 1

If an accrual basis taxpayer prepays interest expense,the payment results in an unfavorable temporary book/tax difference.

Accepted Answer

A) True 
 B)False

Question 2

Political lobbying expenses are nondeductible.

Accepted Answer

A) True 
 B)False

Question 3

An accrual basis taxpayer that accrues a liability at year-end for unpaid state income tax can deduct the accrued tax expense in the computation of federal taxable income.

Accepted Answer

A) True 
 B)False

Question 4

Addis Company operates a large retail men's clothing store.Because Addis has merchandise inventory,it must use:

Accepted Answer

A) The accrual method as its overall method of accounting. 
B) The accrual method to account only for sales of merchandise. 
C) The accrual method to account only for purchases of merchandise. 
D) The accrual method to account for both sales and purchases of merchandise. 
A) The accrual method as its overall method of accounting. 
B) The accrual method to account only for sales of merchandise. 
C) The accrual method to account only for purchases of merchandise. 
D) The accrual method to account for both sales and purchases of merchandise.

Question 5

Shey is single and operates two businesses.This year,business A generated $300,000 of taxable profit.Business B generated a $(625,000)loss.How much of Shey's business loss is not currently deductible due to the excess business loss limitation?

Accepted Answer

A) $(625,000) 
B) $(375,000) 
C) $(70,000) 
D) $0 
A) $(625,000) 
B) $(375,000) 
C) $(70,000) 
D) $0

Question 6

A taxpayer that operates more than one business may use a different method of accounting for each business.

Accepted Answer

A) True 
 B)False

Question 7

BugLess Inc,a calendar year,accrual basis corporation,provides pest extermination services to its customers.In October 2019,BugLess contracted with Mr.Cass to provide monthly service calls for 24 months.Each service call costs $60,and Mr.Cass prepaid $1,440 when he signed the contract.BugLess made three service calls to Mr.Cass' home in 2019.As a result of the contract,BugLess should report:

Accepted Answer

A) $1,440 taxable income in 2019. 
B) $180 taxable income in 2019,$720 taxable income in 2020,and $540 taxable income in 2021. 
C) $180 taxable income in 2019,and $1,260 taxable income in 2020. 
D) None of the above 
A) $1,440 taxable income in 2019. 
B) $180 taxable income in 2019,$720 taxable income in 2020,and $540 taxable income in 2021. 
C) $180 taxable income in 2019,and $1,260 taxable income in 2020. 
D) None of the above

Question 8

A taxpayer that wants to change its taxable year from a fiscal year to a calendar year is not required to receive permission from the IRS to make the change.

Accepted Answer

A) True 
 B)False

Question 9

An accrual basis taxpayer must account for the expense of a legal settlement resulting from a tort under the cash method.

Accepted Answer

A) True 
 B)False

Question 10

Randall Company uses the calendar year and the cash method of accounting.On December 31,2019,Randall made the following cash payments.To what extent can Randall deduct the payments in 2019?
a.$50,000 for a two-year warehouse lease beginning on March 1,2020.
$b.95,000 of inventory items held for sale to customers.
c.$1,800 to purchase a new refrigerator for the employees' lounge.The refrigerator was delivered on February 1,2020.
d.$5,000 compensation to a consultant who spent two weeks in January 2020 analyzing Randall's payroll system.
e.$22,000 property tax to the local government for the first six months of 2020.

Accepted Answer

a.None of the payment is deduc

Question 11

Why does the federal tax law disallow a business deduction for political contributions?

Accepted Answer

A) A deduction for the payment of a political contribution would be a subsidy for bad behavior. 
B) A deduction for the payment of a political contribution would subsidize partisan political activities. 
C) The payment of a political contribution is not an expense for financial reporting purposes. 
D) A deduction for the payment of a fine or penalty would distort the measurement of taxable income. 
A) A deduction for the payment of a political contribution would be a subsidy for bad behavior. 
B) A deduction for the payment of a political contribution would subsidize partisan political activities. 
C) The payment of a political contribution is not an expense for financial reporting purposes. 
D) A deduction for the payment of a fine or penalty would distort the measurement of taxable income.

Question 12

Krasco Inc.'s auditors prepared the following reconciliation between book and taxable income.The corporation has a 21% tax rate.
   a.Compute Krasco's tax expense per books and tax payable.
b.Compute Krasco's net increase in deferred tax assets or deferred tax liabilities (identify which)for the year.

Accepted Answer

a.Tax expense per books is $1,733,157 ([

Question 13

Taxpayers that sell merchandise to their customers must use the accrual method to account for purchases and sales of merchandise.

Accepted Answer

A) True 
 B)False

Question 14

Slumar,an accrual basis,calendar year corporation,reported $7,289,200 net income before tax on its financial statement prepared in accordance with GAAP.The corporate records reveal the following information.
The allowance for bad debts on January 1 was $104,700.Write-offs for the year totaled $113,228,and the addition to the allowance for the year was $105,000.
Slumar incurred $22,000 of entertainment costs and $32,000 of business meals.
At its December 16 meeting,Slumar's board of directors authorized a $100,000 salary bonus for the corporation's CEO.Slumar paid the bonus to the CEO on January 4.The CEO owns 62% of Slumar's outstanding stock.
Slumar was incorporated last year.On its first tax return,it reported a $334,712 net operating loss.
Compute Slumar's taxable income.

Accepted Answer

The answer of Slumar,an accrual basis,calendar year corporation,reported $7,289,200 net...

Question 15

B&B Inc.'s taxable income is computed as follows:   UB&B's tax rate is 21%.Which of the following statements is true?

Accepted Answer

A) The temporary differences caused a $168,441 net decrease in B&B's deferred tax liabilities. 
B) The permanent differences caused a $93,996 net increase in B&B's deferred tax assets. 
C) The permanent differences caused a $93,996 net decrease in B&B's deferred tax assets. 
D) The temporary differences caused a $168,441 net increase in B&B's deferred tax liabilities. 
A) The temporary differences caused a $168,441 net decrease in B&B's deferred tax liabilities. 
B) The permanent differences caused a $93,996 net increase in B&B's deferred tax assets. 
C) The permanent differences caused a $93,996 net decrease in B&B's deferred tax assets. 
D) The temporary differences caused a $168,441 net increase in B&B's deferred tax liabilities.

Question 16

Which of the following statements about the NOL deduction is false?

Accepted Answer

A) The deduction prevents the tax distortion that could result from an inflexible one-year reporting period. 
B) The deduction can reduce taxable income to zero in carryforward years. 
C) The deduction has value based on the NPV of its related tax savings. 
D) None of the above statements is false. 
A) The deduction prevents the tax distortion that could result from an inflexible one-year reporting period. 
B) The deduction can reduce taxable income to zero in carryforward years. 
C) The deduction has value based on the NPV of its related tax savings. 
D) None of the above statements is false.

Question 17

According to your textbook,business managers prefer to:

Accepted Answer

A) Report as much income as possible for book and tax purposes. 
B) Report as much income as possible for book purposes and as little income as possible for tax purposes. 
C) Report as little income as possible for book and tax purposes. 
D) Report the same amount of income for book and tax purposes. 
A) Report as much income as possible for book and tax purposes. 
B) Report as much income as possible for book purposes and as little income as possible for tax purposes. 
C) Report as little income as possible for book and tax purposes. 
D) Report the same amount of income for book and tax purposes.

Question 18

Southlawn Inc.'s taxable income is computed as follows:   Southlawn's tax rate is 21%.Which of the following statements is true?

Accepted Answer

A) The permanent differences caused a $107,520 net increase in Southlawn's deferred tax liabilities. 
B) The permanent differences caused a $107,520 net decrease in Southlawn's deferred tax liabilities. 
C) The temporary differences caused a $39,690 net increase in Southlawn's deferred tax liabilities. 
D) The temporary differences caused a $39,690 net decrease in Southlawn's deferred tax liabilities. 
A) The permanent differences caused a $107,520 net increase in Southlawn's deferred tax liabilities. 
B) The permanent differences caused a $107,520 net decrease in Southlawn's deferred tax liabilities. 
C) The temporary differences caused a $39,690 net increase in Southlawn's deferred tax liabilities. 
D) The temporary differences caused a $39,690 net decrease in Southlawn's deferred tax liabilities.

Question 19

Welch Inc.has used a fiscal ending September 30 as its taxable year since its incorporation in 1988.The shareholders have decided to shut down Welch's business and dissolve the corporation on March 31.Which of the following statements is false?

Accepted Answer

A) Welch's final tax return will be a short-period return. 
B) Welch's final tax return will include its income from October 1 to March 31. 
C) Welch's final tax return will include its income from January 1 to March 31. 
D) None of the above is false. 
A) Welch's final tax return will be a short-period return. 
B) Welch's final tax return will include its income from October 1 to March 31. 
C) Welch's final tax return will include its income from January 1 to March 31. 
D) None of the above is false.

Question 20

Earl Company uses the accrual method of accounting.Here is a reconciliation of Earl's allowance for bad debts for the current year.   Which of the following statements is true?

Accepted Answer

A) Bad debt expense per books is $845,000,and the deduction for bad debts is $899,600. 
B) Bad debt expense per books is $899,600,and the deduction for bad debts is $845,000. 
C) Bad debt expense per books and the deduction for bad debts is $899,600. 
D) Bad debt expense per books and the deduction for bad debts is $895,400. 
A) Bad debt expense per books is $845,000,and the deduction for bad debts is $899,600. 
B) Bad debt expense per books is $899,600,and the deduction for bad debts is $845,000. 
C) Bad debt expense per books and the deduction for bad debts is $899,600. 
D) Bad debt expense per books and the deduction for bad debts is $895,400.

If an accrual basis taxpayer prepays interest expense,the payment results in an unfavorable temporary book/tax difference.

Political lobbying expenses are nondeductible.

An accrual basis taxpayer that accrues a liability at year-end for unpaid state income tax can deduct the accrued tax expense in the computation of federal taxable income.

Addis Company operates a large retail men's clothing store.Because Addis has merchandise inventory,it must use:

Shey is single and operates two businesses.This year,business A generated $300,000 of taxable profit.Business B generated a $(625,000)loss.How much of Shey's business loss is not currently deductible due to the excess business loss limitation?

A taxpayer that operates more than one business may use a different method of accounting for each business.

A taxpayer that wants to change its taxable year from a fiscal year to a calendar year is not required to receive permission from the IRS to make the change.

An accrual basis taxpayer must account for the expense of a legal settlement resulting from a tort under the cash method.

Why does the federal tax law disallow a business deduction for political contributions?

Krasco Inc.'s auditors prepared the following reconciliation between book and taxable income.The corporation has a 21% tax rate. a.Compute Krasco's tax expense per books and tax payable. b.Compute Krasco's net increase in deferred tax assets or deferred tax liabilities (identify which)for the year.

Taxpayers that sell merchandise to their customers must use the accrual method to account for purchases and sales of merchandise.

B&B Inc.'s taxable income is computed as follows: UB&B's tax rate is 21%.Which of the following statements is true?

Which of the following statements about the NOL deduction is false?

According to your textbook,business managers prefer to:

Southlawn Inc.'s taxable income is computed as follows: Southlawn's tax rate is 21%.Which of the following statements is true?

Welch Inc.has used a fiscal ending September 30 as its taxable year since its incorporation in 1988.The shareholders have decided to shut down Welch's business and dissolve the corporation on March 31.Which of the following statements is false?

Earl Company uses the accrual method of accounting.Here is a reconciliation of Earl's allowance for bad debts for the current year. Which of the following statements is true?

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 6: Taxable Income From Business Operations

If an accrual basis taxpayer prepays interest expense,the payment results in an unfavorable temporary book/tax difference.

Political lobbying expenses are nondeductible.

An accrual basis taxpayer that accrues a liability at year-end for unpaid state income tax can deduct the accrued tax expense in the computation of federal taxable income.

Addis Company operates a large retail men's clothing store.Because Addis has merchandise inventory,it must use:

Shey is single and operates two businesses.This year,business A generated $300,000 of taxable profit.Business B generated a $(625,000)loss.How much of Shey's business loss is not currently deductible due to the excess business loss limitation?

A taxpayer that operates more than one business may use a different method of accounting for each business.

A taxpayer that wants to change its taxable year from a fiscal year to a calendar year is not required to receive permission from the IRS to make the change.

An accrual basis taxpayer must account for the expense of a legal settlement resulting from a tort under the cash method.

Why does the federal tax law disallow a business deduction for political contributions?

Krasco Inc.'s auditors prepared the following reconciliation between book and taxable income.The corporation has a 21% tax rate. a.Compute Krasco's tax expense per books and tax payable. b.Compute Krasco's net increase in deferred tax assets or deferred tax liabilities (identify which)for the year.

Taxpayers that sell merchandise to their customers must use the accrual method to account for purchases and sales of merchandise.

B&B Inc.'s taxable income is computed as follows: UB&B's tax rate is 21%.Which of the following statements is true?

Which of the following statements about the NOL deduction is false?

According to your textbook,business managers prefer to:

Southlawn Inc.'s taxable income is computed as follows: Southlawn's tax rate is 21%.Which of the following statements is true?

Welch Inc.has used a fiscal ending September 30 as its taxable year since its incorporation in 1988.The shareholders have decided to shut down Welch's business and dissolve the corporation on March 31.Which of the following statements is false?

Earl Company uses the accrual method of accounting.Here is a reconciliation of Earl's allowance for bad debts for the current year. Which of the following statements is true?

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters