Exam 6: Taxable Income From Business Operations

Timm Inc., a calendar year, accrual basis taxpayer, is being sued by a customer who was injured when she tripped over a loose carpet in Timm's retail store. Timm's auditors required the corporation to accrue a $500,000 contingent liability and current year expense. Which of the following statements is true?

GH&F is a calendar year, accrual basis taxpayer. In October 2020, GH&F received a $18,000 cash payment from a tenant who leases space in a commercial office building that GH&F owns. The payment was rent for the 18-month period beginning on November 1, 2020. As a result of the payment, GH&F should report:

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

Which of the following statements about the accrual method of accounting is false?

Huml Inc. could not deduct an accrued expense because of the all-events test. As a result, Huml has a permanent unfavorable book/tax difference.

A cash basis taxpayer must account for any prepayment of interest expense under the accrual method.

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

Political lobbying expenses are nondeductible.

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

Molton Inc., which operates a chain of retail toy stores, prepares GAAP based financial statements. Molton must use the allowance method to account for business bad debts for both book and tax purposes.

Income tax expense per books is based on book income adjusted for all book/tax differences.

Which of the following statements about methods of accounting is false?

Taxpayers that sell merchandise to their customers must use the accrual method as their overall method of accounting.

Which of the following business expenses always results in a difference between taxable income and book income?

Which of the following statements concerning the cash method of accounting is true?

Krasco Inc.'s auditors prepared the following reconciliation between book and taxable income. The corporation has a 21% tax rate. Book income before tax 288,900 Net permanent differences (35,770) Net temporary differences 112,400 Taxable income \ 8,365,530 Compute Krasco's tax expense per books and tax payable.Compute Krasco's net increase in deferred tax assets or deferred tax liabilities (identify which) for the year.

Assuming a 21% marginal tax rate, compute the after-tax cost of the following business expenses.$12,300 business meals.$42,000 rent on factory equipment.$8,050 business entertainment.

BugLess Inc, a calendar year, accrual basis corporation, provides pest extermination services to its customers. In October 2020, 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 2020. As a result of the contract, BugLess should report:

Which of the following statements about the constructive receipt doctrine is false?