Question 1

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

Accepted Answer

A)  Business meal and entertainment expense 
B)  Nondedutible fines and penalties 
C)  Premiums paid on key-person life insurance policies 
D)  All of the above result in a permanent book/tax difference. 
A)  Business meal and entertainment expense 
B)  Nondedutible fines and penalties 
C)  Premiums paid on key-person life insurance policies 
D)  All of the above result in a permanent book/tax difference.

Question 2

Tonto Inc. has used a calendar year as its taxable year since its incorporation in 1990. Tonto has an excellent business reason for changing to a fiscal year ending May 31. Which of the following statements is true?

Accepted Answer

A)  Because it has a good business reason, Tonto can change to a fiscal year ending May 31 without IRS permission. 
B)  If Tonto changes to a fiscal year ending May 31, it must file a short-period return for the seven-month period from June 1 to December 31 of the year of change. 
C)  If Tonto changes to a fiscal year ending May 31, it must file a short-period return for the five-month period from January 1 to May 31 of the year of change. 
D)  Because it has a good business reason, Tonto can change to a fiscal year ending May 31 without IRS permission and if Tonto changes to a fiscal year ending May 31, it must file a short-period return for the seven-month period from June 1 to December 31 of the year of change. 
A)  Because it has a good business reason, Tonto can change to a fiscal year ending May 31 without IRS permission. 
B)  If Tonto changes to a fiscal year ending May 31, it must file a short-period return for the seven-month period from June 1 to December 31 of the year of change. 
C)  If Tonto changes to a fiscal year ending May 31, it must file a short-period return for the five-month period from January 1 to May 31 of the year of change. 
D)  Because it has a good business reason, Tonto can change to a fiscal year ending May 31 without IRS permission and if Tonto changes to a fiscal year ending May 31, it must file a short-period return for the seven-month period from June 1 to December 31 of the year of change.

Question 3

Eddy Corporation engaged in a transaction that generated $100,000 book income but only $81,000 taxable income. Which of the following is true?

Accepted Answer

A)  If the $19,000 excess of book income over taxable income is temporary, the transaction has no effect on Eddy's deferred tax accounts. 
B)  The $19,000 excess of book income over taxable income is an unfavorable difference. 
C)  If the $19,000 excess of book income over taxable income is permanent, the transaction has no effect on Eddy's deferred tax accounts. 
D)  None of these choices are true. 
A)  If the $19,000 excess of book income over taxable income is temporary, the transaction has no effect on Eddy's deferred tax accounts. 
B)  The $19,000 excess of book income over taxable income is an unfavorable difference. 
C)  If the $19,000 excess of book income over taxable income is permanent, the transaction has no effect on Eddy's deferred tax accounts. 
D)  None of these choices are true.

Question 4

If an accrual basis taxpayer receives a prepayment of rent income, the receipt results in an unfavorable temporary book/tax difference.

Accepted Answer

A) True 
 B)False

Question 5

Any taxpayers may adopt the cash receipts and disbursements method, the accrual method, or a hybrid method of accounting for tax purposes.

Accepted Answer

A) True 
 B)False

Question 6

Mundo Company is a calendar year, accrual basis taxpayer. In June 2020, Mundo received a $72,000 cash payment from a tenant who leases space in a commercial office building that Mundo owns. The payment was rent for the 24-month period beginning on July 1, 2020. As a result of the payment, Mundo should report:

Accepted Answer

A)  $18,000 book income and taxable income 
B)  $72,000 book income and taxable income 
C)  No book income and $72,000 taxable income 
D)  None of these choices are correct 
A)  $18,000 book income and taxable income 
B)  $72,000 book income and taxable income 
C)  No book income and $72,000 taxable income 
D)  None of these choices are correct

Question 7

Monro Inc. uses the accrual method of accounting. Here is a reconciliation of Monro's allowance for bad debts for the current year. $\begin{array}{lr}
\text { Beginning allowance for bad debts }&\$61,150\
\text { Actual write-offs of accounts receivable during the year }&(80,000)\
\text {Addition to allowance }&88,500\\text { Ending allowance for bad debts }&\$69,650
\end{array}$
 Which of the following statements is true?

Accepted Answer

A)  Bad debt expense per books and the deduction for bad debts is $69,650. 
B)  Bad debt expense per books and the deduction for bad debts is $88,500. 
C)  Bad debt expense per books is $80,000, and the deduction for bad debts is $88,500. 
D)  Bad debt expense per books is $88,500, and the deduction for bad debts is $80,000. 
A)  Bad debt expense per books and the deduction for bad debts is $69,650. 
B)  Bad debt expense per books and the deduction for bad debts is $88,500. 
C)  Bad debt expense per books is $80,000, and the deduction for bad debts is $88,500. 
D)  Bad debt expense per books is $88,500, and the deduction for bad debts is $80,000.

Question 8

Pim Inc. operates a business with a natural annual operating cycle ending August 31. Which of the following can Pim adopt as its taxable year?

Accepted Answer

A)  A calendar year. 
B)  Fiscal year ending June 30. 
C)  Fiscal year ending August 31. 
D)  Pim can adopt a calendar year or any fiscal year as its taxable year. 
A)  A calendar year. 
B)  Fiscal year ending June 30. 
C)  Fiscal year ending August 31. 
D)  Pim can adopt a calendar year or any fiscal year as its taxable year.

Question 9

Toro Inc. has average gross receipts of $30 million annually. In 2019, Toro incurred $7 million of net business interest and has adjusted taxable income of $12 million. Toro's current deduction for business interest is:

Accepted Answer

A)  $2.1 million 
B)  $3.6 million 
C)  $6 million 
D)  $0 
A)  $2.1 million 
B)  $3.6 million 
C)  $6 million 
D)  $0

Question 10

Murray Inc., a calendar year, accrual basis corporation, accrued $946,000 salary and wage expense at the end of 2020. Murray paid the entire amount of the accrued liability on January 13, 2021. Murray can deduct the entire $946,000 accrued expense in 2020.

Accepted Answer

A) True 
 B)False

Question 11

Valley Inc. incurred a $71,400 net operating loss in 2021. Which of the following statements is true?

Accepted Answer

A)  Valley can use the NOL only as a carryforward deduction. 
B)  Valley can use the NOL only as a carryback deduction. 
C)  Valley can elect to use the NOL as a carryforward or carryback deduction. 
D)  None of these choices are true. 
A)  Valley can use the NOL only as a carryforward deduction. 
B)  Valley can use the NOL only as a carryback deduction. 
C)  Valley can elect to use the NOL as a carryforward or carryback deduction. 
D)  None of these choices are true.

Question 12

Which of the following statements describes a permanent book/tax difference?

Accepted Answer

A)  An expense reported on the current income statement but deducted on next year's tax return 
B)  A revenue item included in current taxable income but not reported on the income statement until next year 
C)  An expense (or loss) is realized for book purposes but never recognized for tax purposes 
D)  A revenue item reported on the current income statement but not included in taxable income until an indefinite future year 
A)  An expense reported on the current income statement but deducted on next year's tax return 
B)  A revenue item included in current taxable income but not reported on the income statement until next year 
C)  An expense (or loss) is realized for book purposes but never recognized for tax purposes 
D)  A revenue item reported on the current income statement but not included in taxable income until an indefinite future year

Question 13

Mr. John Carre owns 67% of the stock of JC Inc. and is employed as the corporation's CEO. The corporation is a calendar year, accrual basis taxpayer. On December 14, 2020, the board of directors authorized a $45,000 year-end bonus for Mr. Carre, which was paid to him on February 1, 2021. In which year can JC Inc. deduct the bonus?

Accepted Answer

A)  2020. 
B)  2021. 
C)  JC Inc. can deduct only $14,850 (33%) of the bonus in 2020. 
D)  JC Inc. can never deduct the bonus. 
A)  2020. 
B)  2021. 
C)  JC Inc. can deduct only $14,850 (33%) of the bonus in 2020. 
D)  JC Inc. can never deduct the bonus.

Question 14

Zephex is a calendar year corporation. On December 1, 2020, Zephex received a $12,000 check from a tenant that leases office space owned by Zephex. This payment was rent for the four-month period from December 1, 2020, through March 31, 2021. On December 2, 2020, Zephex billed a client $38,250 for services rendered to the client in November. The client did not pay the bill until January 14, 2021.
If Zephex is a cash basis taxpayer, how much 2020taxable income should it recognize with respect to the above transactions?If Zephex is an accrual basis taxpayer, how much 2020 book income should it report and how much 2020 taxable income should it recognize with respect to the above transactions?

Accepted Answer

For tax purposes, Zephex should recogniz

Question 15

Pozzi Company, a cash basis business, received $16,930 cash as payment on a loan Pozzi made to a business associate two years ago. The payment consisted of a $15,000 principal payment and $1,930 interest. On receipt of the cash, Pozzi recognizes:

Accepted Answer

A)  No taxable income. 
B)  $1,930 taxable income. 
C)  $15,000 taxable income. 
D)  $16,930 taxable income. 
A)  No taxable income. 
B)  $1,930 taxable income. 
C)  $15,000 taxable income. 
D)  $16,930 taxable income.

Question 16

B&B Inc.'s taxable income is computed as follows: $\begin{array}{lr}\text { Book income before tax }&\$9,882,590\
\text { Net permanent differences}&447,600\
\text {Net temporary differences }&(802,100)\\text { Taxable income }&\$9,528,090
\end{array}$
 B&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 17

On November 30, 2020, Laine Services, a calendar year taxpayer, billed a client $8,450 for services rendered during 2020. Laine received a check in full payment from the client on January 12, 2021. If Laine is an accrual basis taxpayer, it reports $8,450 taxable income in 2020.

Accepted Answer

A) True 
 B)False

Question 18

RRK, a calendar year, accrual basis taxpayer, is involved in a legal dispute over an alleged trademark violation. At the end of the year, RRK's accountant recorded a $750,000 accrued expense for the estimated settlement cost of the dispute. Which of the following statements is true?

Accepted Answer

A)  RRK can deduct the $750,000 accrued expense. 
B)  RRK can't deduct the $750,000 accrued expense because the liability fails the all-events test. 
C)  RRK can never deduct the $750,000 expense. 
D)  RRK can deduct the accrued expense only if the dispute is settled within eight and one-half months after the close of the taxable year. 
A)  RRK can deduct the $750,000 accrued expense. 
B)  RRK can't deduct the $750,000 accrued expense because the liability fails the all-events test. 
C)  RRK can never deduct the $750,000 expense. 
D)  RRK can deduct the accrued expense only if the dispute is settled within eight and one-half months after the close of the taxable year.

Question 19

Tabco Inc., a calendar year, accrual basis corporation, accrued $48,800 wage and salary expense and a corresponding liability at the end of 2020. How much of the accrued expense is deductible in 2020?

Accepted Answer

A)  None of the accrued expense is deductible in 2020. 
B)  The entire accrued expense is deductible in 2020. 
C)  The amount of the accrued expense paid by September 15, 2021, is deductible in 2020. 
D)  The amount of the accrued expense paid by March 15, 2021, is deductible in 2020. 
A)  None of the accrued expense is deductible in 2020. 
B)  The entire accrued expense is deductible in 2020. 
C)  The amount of the accrued expense paid by September 15, 2021, is deductible in 2020. 
D)  The amount of the accrued expense paid by March 15, 2021, is deductible in 2020.

Question 20

Which of the following taxpayers is subject to the excess business loss limitation?

Accepted Answer

A)  Delta Corporation, which incurred a $(2 million) business loss this year. 
B)  Kenny, who is married filing a joint return and incurred a $(675,000) business loss this year. 
C)  Linda, a single individual, who is a 50 percent partner in QT Partnership. This year, QT incurred a business loss of $(300,000). 
D)  LetGo Partnership, which incurred a $(730,000) business loss this year. 
A)  Delta Corporation, which incurred a $(2 million) business loss this year. 
B)  Kenny, who is married filing a joint return and incurred a $(675,000) business loss this year. 
C)  Linda, a single individual, who is a 50 percent partner in QT Partnership. This year, QT incurred a business loss of $(300,000). 
D)  LetGo Partnership, which incurred a $(730,000) business loss this year.

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

Tonto Inc. has used a calendar year as its taxable year since its incorporation in 1990. Tonto has an excellent business reason for changing to a fiscal year ending May 31. Which of the following statements is true?

Eddy Corporation engaged in a transaction that generated $100,000 book income but only $81,000 taxable income. Which of the following is true?

If an accrual basis taxpayer receives a prepayment of rent income, the receipt results in an unfavorable temporary book/tax difference.

Any taxpayers may adopt the cash receipts and disbursements method, the accrual method, or a hybrid method of accounting for tax purposes.

Pim Inc. operates a business with a natural annual operating cycle ending August 31. Which of the following can Pim adopt as its taxable year?

Toro Inc. has average gross receipts of $30 million annually. In 2019, Toro incurred $7 million of net business interest and has adjusted taxable income of $12 million. Toro's current deduction for business interest is:

Murray Inc., a calendar year, accrual basis corporation, accrued $946,000 salary and wage expense at the end of 2020. Murray paid the entire amount of the accrued liability on January 13, 2021. Murray can deduct the entire $946,000 accrued expense in 2020.

Valley Inc. incurred a $71,400 net operating loss in 2021. Which of the following statements is true?

Which of the following statements describes a permanent book/tax difference?

Pozzi Company, a cash basis business, received $16,930 cash as payment on a loan Pozzi made to a business associate two years ago. The payment consisted of a $15,000 principal payment and $1,930 interest. On receipt of the cash, Pozzi recognizes:

B&B Inc.'s taxable income is computed as follows: Book income before tax \9 ,882,590 Net permanent differences 447,600 Net temporary differences (802,100) Taxable income \9 ,528,090 B&B's tax rate is 21%. Which of the following statements is true?

On November 30, 2020, Laine Services, a calendar year taxpayer, billed a client $8,450 for services rendered during 2020. Laine received a check in full payment from the client on January 12, 2021. If Laine is an accrual basis taxpayer, it reports $8,450 taxable income in 2020.

RRK, a calendar year, accrual basis taxpayer, is involved in a legal dispute over an alleged trademark violation. At the end of the year, RRK's accountant recorded a $750,000 accrued expense for the estimated settlement cost of the dispute. Which of the following statements is true?

Tabco Inc., a calendar year, accrual basis corporation, accrued $48,800 wage and salary expense and a corresponding liability at the end of 2020. How much of the accrued expense is deductible in 2020?

Which of the following taxpayers is subject to the excess business loss limitation?

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 does not result in a permanent book/tax difference?

Tonto Inc. has used a calendar year as its taxable year since its incorporation in 1990. Tonto has an excellent business reason for changing to a fiscal year ending May 31. Which of the following statements is true?

Eddy Corporation engaged in a transaction that generated $100,000 book income but only $81,000 taxable income. Which of the following is true?

If an accrual basis taxpayer receives a prepayment of rent income, the receipt results in an unfavorable temporary book/tax difference.

Any taxpayers may adopt the cash receipts and disbursements method, the accrual method, or a hybrid method of accounting for tax purposes.

Pim Inc. operates a business with a natural annual operating cycle ending August 31. Which of the following can Pim adopt as its taxable year?

Toro Inc. has average gross receipts of $30 million annually. In 2019, Toro incurred $7 million of net business interest and has adjusted taxable income of $12 million. Toro's current deduction for business interest is:

Murray Inc., a calendar year, accrual basis corporation, accrued $946,000 salary and wage expense at the end of 2020. Murray paid the entire amount of the accrued liability on January 13, 2021. Murray can deduct the entire $946,000 accrued expense in 2020.

Valley Inc. incurred a $71,400 net operating loss in 2021. Which of the following statements is true?

Which of the following statements describes a permanent book/tax difference?

Pozzi Company, a cash basis business, received $16,930 cash as payment on a loan Pozzi made to a business associate two years ago. The payment consisted of a $15,000 principal payment and $1,930 interest. On receipt of the cash, Pozzi recognizes:

B&B Inc.'s taxable income is computed as follows: Book income before tax \9 ,882,590 Net permanent differences 447,600 Net temporary differences (802,100) Taxable income \9 ,528,090 B&B's tax rate is 21%. Which of the following statements is true?

On November 30, 2020, Laine Services, a calendar year taxpayer, billed a client $8,450 for services rendered during 2020. Laine received a check in full payment from the client on January 12, 2021. If Laine is an accrual basis taxpayer, it reports $8,450 taxable income in 2020.

RRK, a calendar year, accrual basis taxpayer, is involved in a legal dispute over an alleged trademark violation. At the end of the year, RRK's accountant recorded a $750,000 accrued expense for the estimated settlement cost of the dispute. Which of the following statements is true?

Tabco Inc., a calendar year, accrual basis corporation, accrued $48,800 wage and salary expense and a corresponding liability at the end of 2020. How much of the accrued expense is deductible in 2020?

Which of the following taxpayers is subject to the excess business loss limitation?

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