Question 1

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 these choices are 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 these choices are false.

Question 2

Elcox Company, a calendar year, cash basis taxpayer, paid $950 to purchase eight months' worth of office supplies on December 12. Elcox can deduct $950 in the year of payment.

Accepted Answer

A) True 
 B)False

Question 3

Marz Services Inc. is a personal service corporation with $60 million average annual gross receipts. Marz must use the accrual method of accounting for tax purposes.

Accepted Answer

A) True 
 B)False

Question 4

Accurate measurement of taxable income is the only objective of the federal income tax laws.

Accepted Answer

A) True 
 B)False

Question 5

Poole Services, a calendar year taxpayer, billed a client for $1,675 of services on November 30, 2020, and received a check in full payment from the client on January 12, 2021. If Poole is a cash basis taxpayer, it reports $1,675 taxable income in 2020.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements about the all-events test is false?

Accepted Answer

A)  An accrued expense is not deductible unless the liability for the expense is fixed. 
B)  An accrued expense is not deductible unless the amount of the expense is determinable with reasonable accuracy. 
C)  An accrued expense is not deductible unless economic performance with respect to the liability has occurred. 
D)  None of these choices are false. 
A)  An accrued expense is not deductible unless the liability for the expense is fixed. 
B)  An accrued expense is not deductible unless the amount of the expense is determinable with reasonable accuracy. 
C)  An accrued expense is not deductible unless economic performance with respect to the liability has occurred. 
D)  None of these choices are false.

Question 7

On December 19, 2020, Acme Inc., an accrual basis corporation, accrued $50,000 compensation expense for a routine year-end bonus payable to Mrs. Tabor, who is Acme's CFO. Acme paid the $50,000 to Mrs. Tabor on January 15, 2021. Which of the following statements is false?

Accepted Answer

A)  If Mrs. Tabor owns no stock in Acme (i.e. is not a related party), Acme can deduct the accrued expense in 2020. 
B)  Mrs. Tabor includes her $50,000 bonus in 2021 gross income. 
C)  If Mrs. Tabor owns 75 percent of Acme's stock (i.e. is a related party), Acme can't deduct the expense until 2021. 
D)  If Mrs. Tabor owns 75 percent of Acme's stock (i.e. is a related party), Acme can never deduct the bonus expense. 
A)  If Mrs. Tabor owns no stock in Acme (i.e. is not a related party), Acme can deduct the accrued expense in 2020. 
B)  Mrs. Tabor includes her $50,000 bonus in 2021 gross income. 
C)  If Mrs. Tabor owns 75 percent of Acme's stock (i.e. is a related party), Acme can't deduct the expense until 2021. 
D)  If Mrs. Tabor owns 75 percent of Acme's stock (i.e. is a related party), Acme can never deduct the bonus expense.

Question 8

Which of the following statements about tax policy objectives regarding business expenses is false?

Accepted Answer

A)  Lobbying expenses are not deductible because Congress does not want to subsidize political activities. 
B)  By disallowing a tax deduction, Congress increases the after-tax cost of undesirable expenditures. 
C)  The tax treatment of meals and entertainment expenses is intended to make the law more equitable. 
D)  The business interest expense limitation increases the disparity between the tax treatment of debt and equity financing. 
A)  Lobbying expenses are not deductible because Congress does not want to subsidize political activities. 
B)  By disallowing a tax deduction, Congress increases the after-tax cost of undesirable expenditures. 
C)  The tax treatment of meals and entertainment expenses is intended to make the law more equitable. 
D)  The business interest expense limitation increases the disparity between the tax treatment of debt and equity financing.

Question 9

Bolton Inc., a calendar year taxpayer, generated a $296,400 net operating loss this year. Bolton can carry the loss back five years and forward 20 years for tax purposes.

Accepted Answer

A) True 
 B)False

Question 10

A temporary difference between book income and taxable income results when an item of income reflected on the books is never included in taxable income.

Accepted Answer

A) True 
 B)False

Question 11

Shey is single and operates two businesses. In 2021, 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)  $(325,000) 
C)  $(66,000) 
D)  $0 
A)  $(625,000) 
B)  $(325,000) 
C)  $(66,000) 
D)  $0

Question 12

Why does the federal tax law disallow a business deduction for a fine or penalty paid to any government?

Accepted Answer

A)  A deduction for the payment of a fine or penalty would be a subsidy for bad behavior and also against public policy. 
B)  The payment of a fine or penalty is not an ordinary business expense. 
C)  The payment of a fine or penalty 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 fine or penalty would be a subsidy for bad behavior and also against public policy. 
B)  The payment of a fine or penalty is not an ordinary business expense. 
C)  The payment of a fine or penalty 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 13

Derik Inc., a calendar year, accrual basis corporation, accrued $278,000 vacation pay expense and a corresponding liability at the end of 2020. Derik paid $22,000 of the accrued liability to employees who took vacation between January 1 and March 15, 2021. How much of the accrued vacation pay expense is deductible in 2020?

Accepted Answer

A)  None of the accrued expense is deductible in 2020. 
B)  $22,000. 
C)  $256,000. 
D)  The entire accrued expense is deductible in 2020. 
A)  None of the accrued expense is deductible in 2020. 
B)  $22,000. 
C)  $256,000. 
D)  The entire accrued expense is deductible in 2020.

Question 14

Hitz Company, a calendar year, accrual basis taxpayer, recorded $1,735 accrued interest expense and $1,735 accrued interest payable when it closed its books on December 31. The interest relates to a loan from First State Bank and accrued over the last two months of the year. Which of the following statements is true?

Accepted Answer

A)  Hitz can't deduct the accrued interest expense until the year of payment. 
B)  Hitz can deduct the accrued interest expense this year only if it pays the interest within eight and one-half months after the close of the year. 
C)  Hitz can deduct the accrued interest expense this year. 
D)  Hitz can never deduct the interest expense. 
A)  Hitz can't deduct the accrued interest expense until the year of payment. 
B)  Hitz can deduct the accrued interest expense this year only if it pays the interest within eight and one-half months after the close of the year. 
C)  Hitz can deduct the accrued interest expense this year. 
D)  Hitz can never deduct the interest expense.

Question 15

Which of the following does not result in a permanent book/tax difference?

Accepted Answer

A)  Tax-exempt interest on state and local bonds 
B)  NOL carryforwards 
C)  Business entertainment expenses 
D)  Lobbying expenses 
A)  Tax-exempt interest on state and local bonds 
B)  NOL carryforwards 
C)  Business entertainment expenses 
D)  Lobbying expenses

Question 16

Bendom Inc, a calendar year, accrual basis corporation, hired Rukel Company to provide professional services. Rukel completed the services on November 30, 2020, and immediately sent Bendom a bill for $37,750. Bendom paid the bill on January 4, 2021. Which of the following statements is false?

Accepted Answer

A)  If Bendom and Rukel are related parties, Rukel must report $37,750 income on its 2020 tax return regardless of its method of accounting. 
B)  If Rukel uses the accrual method, it must report $37,750 income on its 2020 tax return. 
C)  If Bendom and Rukel are unrelated parties, Bendom can deduct the $37,750 accrued expense on its 2020 tax return. 
D)  If Bendom and Rukel are related parties, Bendom can deduct the $37,750 accrued expense on its 2020 tax return only if Rukel uses the accrual method of accounting. 
A)  If Bendom and Rukel are related parties, Rukel must report $37,750 income on its 2020 tax return regardless of its method of accounting. 
B)  If Rukel uses the accrual method, it must report $37,750 income on its 2020 tax return. 
C)  If Bendom and Rukel are unrelated parties, Bendom can deduct the $37,750 accrued expense on its 2020 tax return. 
D)  If Bendom and Rukel are related parties, Bendom can deduct the $37,750 accrued expense on its 2020 tax return only if Rukel uses the accrual method of accounting.

Question 17

A corporation can't have an increase in deferred tax assets and an increase in deferred tax liabilities in the same year.

Accepted Answer

A) True 
 B)False

Question 18

A permanent difference between book income and taxable income affects only one taxable year.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Which of the following businesses can't use the cash receipts and disbursement method of accounting for tax purposes?

Accepted Answer

A)  Sole proprietorship with $8 million average annual gross receipts 
B)  Corporation with $50 million average annual gross receipts 
C)  Partnership of individuals with $20 million average annual gross receipts 
D)  Personal service corporation with $50 million average annual gross receipts 
A)  Sole proprietorship with $8 million average annual gross receipts 
B)  Corporation with $50 million average annual gross receipts 
C)  Partnership of individuals with $20 million average annual gross receipts 
D)  Personal service corporation with $50 million average annual gross receipts

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

Elcox Company, a calendar year, cash basis taxpayer, paid $950 to purchase eight months' worth of office supplies on December 12. Elcox can deduct $950 in the year of payment.

Marz Services Inc. is a personal service corporation with $60 million average annual gross receipts. Marz must use the accrual method of accounting for tax purposes.

Accurate measurement of taxable income is the only objective of the federal income tax laws.

Poole Services, a calendar year taxpayer, billed a client for $1,675 of services on November 30, 2020, and received a check in full payment from the client on January 12, 2021. If Poole is a cash basis taxpayer, it reports $1,675 taxable income in 2020.

Which of the following statements about the all-events test is false?

On December 19, 2020, Acme Inc., an accrual basis corporation, accrued $50,000 compensation expense for a routine year-end bonus payable to Mrs. Tabor, who is Acme's CFO. Acme paid the $50,000 to Mrs. Tabor on January 15, 2021. Which of the following statements is false?

Which of the following statements about tax policy objectives regarding business expenses is false?

Bolton Inc., a calendar year taxpayer, generated a $296,400 net operating loss this year. Bolton can carry the loss back five years and forward 20 years for tax purposes.

A temporary difference between book income and taxable income results when an item of income reflected on the books is never included in taxable income.

Shey is single and operates two businesses. In 2021, 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?

Why does the federal tax law disallow a business deduction for a fine or penalty paid to any government?

Which of the following does not result in a permanent book/tax difference?

Bendom Inc, a calendar year, accrual basis corporation, hired Rukel Company to provide professional services. Rukel completed the services on November 30, 2020, and immediately sent Bendom a bill for $37,750. Bendom paid the bill on January 4, 2021. Which of the following statements is false?

A corporation can't have an increase in deferred tax assets and an increase in deferred tax liabilities in the same year.

A permanent difference between book income and taxable income affects only one taxable year.

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.

Which of the following businesses can't use the cash receipts and disbursement method of accounting for tax purposes?

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

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

Elcox Company, a calendar year, cash basis taxpayer, paid $950 to purchase eight months' worth of office supplies on December 12. Elcox can deduct $950 in the year of payment.

Marz Services Inc. is a personal service corporation with $60 million average annual gross receipts. Marz must use the accrual method of accounting for tax purposes.

Accurate measurement of taxable income is the only objective of the federal income tax laws.

Poole Services, a calendar year taxpayer, billed a client for $1,675 of services on November 30, 2020, and received a check in full payment from the client on January 12, 2021. If Poole is a cash basis taxpayer, it reports $1,675 taxable income in 2020.

Which of the following statements about the all-events test is false?

On December 19, 2020, Acme Inc., an accrual basis corporation, accrued $50,000 compensation expense for a routine year-end bonus payable to Mrs. Tabor, who is Acme's CFO. Acme paid the $50,000 to Mrs. Tabor on January 15, 2021. Which of the following statements is false?

Which of the following statements about tax policy objectives regarding business expenses is false?

Bolton Inc., a calendar year taxpayer, generated a $296,400 net operating loss this year. Bolton can carry the loss back five years and forward 20 years for tax purposes.

A temporary difference between book income and taxable income results when an item of income reflected on the books is never included in taxable income.

Shey is single and operates two businesses. In 2021, 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?

Why does the federal tax law disallow a business deduction for a fine or penalty paid to any government?

Which of the following does not result in a permanent book/tax difference?

Bendom Inc, a calendar year, accrual basis corporation, hired Rukel Company to provide professional services. Rukel completed the services on November 30, 2020, and immediately sent Bendom a bill for $37,750. Bendom paid the bill on January 4, 2021. Which of the following statements is false?

A corporation can't have an increase in deferred tax assets and an increase in deferred tax liabilities in the same year.

A permanent difference between book income and taxable income affects only one taxable year.

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.

Which of the following businesses can't use the cash receipts and disbursement method of accounting for tax purposes?

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