Exam 6: Taxable Income from Business Operations

On December 12, 2018, Hook Company, a calendar year, cash basis business, mailed a $5,600 bill to Mrs Gilder for professional services rendered during the month of November. Mrs Gilder dropped off her $5,600 check at Hook's office on December 28, but the company secretary did not deposit the check in Hook's bank account until January 3. Which of the following statements is true?  

Lawes Company, a cash basis business, mailed a $24,500 invoice to MWQ Partnership for professional services rendered. MWQ offered to pay the invoice by transferring 250 shares of ConAgri common stock to Lawes. The shares are selling on the NYSE at $98 per share. If Lawes accepts the shares in payment, it recognizes:  

Jackey Company, a calendar year, accrual basis taxpayer, did not pay the $44,200 December rent on its commercial office space until January 8. As result, Jackey's accountant made a routine year-end accrual of $44,200 rent expense. 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 2018. How much of the accrued expense is deductible in 2018? 

Toro Inc. has average gross receipts of $30 million annually. This year, Toro incurred $5 million of net business interest and has adjusted taxable income of $12 million. Toro's current deduction for business interest is: 

Zephex is a calendar year corporation. On December 1, 2018, 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, 2018, through March 31, 2019. On December 2, 2018, Zephex billed a client $38,250 for services rendered to the client in November. The client did not pay the bill until January 14, 2019. a. If Zephex is a cash basis taxpayer, how much 2018 income should it recognize with respect to the above transactions? b. If Zephex is an accrual basis taxpayer, how much 2018 book income should it report and how much 2018 taxable income should it recognize with respect to the above transactions?

Monro Inc. uses the accrual method of accounting. Here is a reconciliation of Monro's allowance for bad debts for the current year. Beginning allowance for bad debts $ 61,150 Actual write-offs of accounts receivable during the year (80,000 ) Addition to allowance 88,500 Ending allowance for bad debts $ 69,650 Because of the difference between the GAAP and the tax rules for accounting for bad debts, Monro Inc. has an:

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

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:  

An unfavorable temporary book/tax difference generates a deferred tax asset. 

When an individual taxpayer begins a new business as a sole proprietorship and wants to keep records on a fiscal year basis, permission to change taxable years is not required because this is a new business. 

Unex Company is an accrual basis taxpayer. This year, an employee sued Unex for unlawful age discrimination, and the company's auditors required it to accrue a $500,000 liability for the estimated expense of settling this lawsuit. Which of the following statements is true? 

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

GH&F is a calendar year, accrual basis taxpayer. In October 2018, 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, 2018. As a result of the payment, GH&F should report: 

PPQ Inc. wants to change from a hybrid method of accounting to the accrual method of accounting for tax purposes. PPQ can't make this change without receiving permission from the IRS.  

Two years ago, Ipenex Inc., an accrual basis taxpayer, wrote off a $17,500 account receivable as uncollectible. This year, Ipenex received an entirely unexpected check for $17,500 from the debtor. Which of the following statements is false?  

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

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?  

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

Laine Services, a calendar year taxpayer, billed a client for $8,450 of services on November 30, 2018, and received a check in full payment from the client on January 12, 2019. If Poole is an accrual basis taxpayer, it reports $8,450 taxable income in 2018.