Question 1

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.

Accepted Answer

A) True 
 B)False  False

Question 2

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 the above is 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 the above is false. D

Question 3

This year,Garfield Inc.generated a $25,000 net operating loss.Which of the following statements is false?

Accepted Answer

A) If Garfield can carry the entire NOL back to deduct against prior year taxable income,the NOL will have no deferred tax consequences. 
B) If Garfield can't use any of the NOL as a carryback deduction,the NOL will result in a deferred tax liability. 
C) Garfield can elect to give up the carryback of the NOL. 
D) If Garfield can't use any of the NOL as a carryback deduction,it can carry the NOL forward for 20 years. 
A) If Garfield can carry the entire NOL back to deduct against prior year taxable income,the NOL will have no deferred tax consequences. 
B) If Garfield can't use any of the NOL as a carryback deduction,the NOL will result in a deferred tax liability. 
C) Garfield can elect to give up the carryback of the NOL. 
D) If Garfield can't use any of the NOL as a carryback deduction,it can carry the NOL forward for 20 years. B

Question 4

On December 19,2017,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 15,2018.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 2017. 
B) Mrs.Tabor includes her $50,000 bonus in 2018 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 2018. 
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 2017. 
B) Mrs.Tabor includes her $50,000 bonus in 2018 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 2018. 
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 5

Rydel Inc.was incorporated on August 9 and elected to use a calendar year for tax purposes.Rydel must annualize the income reported on its first tax return for the short period from August 9 to December 31.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 14,2017,the board of directors authorized a $45,000 year-end bonus for Mr.Carre,which was paid to him on February 1,2018.In which year can JC Inc.deduct the bonus?

Accepted Answer

A) 2017. 
B) 2018. 
C) JC Inc.can deduct only $14,850 (33%)of the bonus in 2017. 
D) JC Inc.can never deduct the bonus. 
A) 2017. 
B) 2018. 
C) JC Inc.can deduct only $14,850 (33%)of the bonus in 2017. 
D) JC Inc.can never deduct the bonus.

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Tabco Inc.,a calendar year,accrual basis corporation,accrued $48,800 wage and salary expense and a corresponding liability at the end of 2017.How much of the accrued expense is deductible in 2017?

Accepted Answer

A) None of the accrued expense is deductible in 2017. 
B) The entire accrued expense is deductible in 2017. 
C) The amount of the accrued expense paid by September 15,2018,is deductible in 2017. 
D) The amount of the accrued expense paid by March 15,2018,is deductible in 2017. 
A) None of the accrued expense is deductible in 2017. 
B) The entire accrued expense is deductible in 2017. 
C) The amount of the accrued expense paid by September 15,2018,is deductible in 2017. 
D) The amount of the accrued expense paid by March 15,2018,is deductible in 2017.

Question 11

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 12

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 13

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 the above is 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 the above is true.

Question 14

Murray Inc.,a calendar year,accrual basis corporation,accrued $946,000 salary and wage expense at the end of 2016.Murray paid the entire amount of the accrued liability on January 13,2017.Murray can deduct the entire $946,000 accrued expense in 2016.

Accepted Answer

A) True 
 B)False

Question 15

Mundo Company is a calendar year,accrual basis taxpayer.In June 2017,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 1,2017.As a result of the payment,Mundo should report:

Accepted Answer

A) $6,000 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 the above 
A) $6,000 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 the above

Question 16

Mr.Stern,a cash basis taxpayer,was notified by his bank that he earned $1,193 of interest on his savings account in 2017.Mr.Stern has not withdrawn any funds from this account for eight years and did not receive the notification until January 26,2018.Mr.Stern does not recognize the interest as income in 2017.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 19

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

Accepted Answer

A) The IRS has the right to determine if a taxpayer's method of accounting clearly reflects the taxpayer's income. 
B) A taxpayer must request permission from the IRS to change its method of accounting for tax purposes. 
C) A taxpayer engaged in more than one business can use a different method of accounting for each business. 
D) Taxpayers must use the same method of accounting to compute taxable income as they use to compute financial statement income. 
A) The IRS has the right to determine if a taxpayer's method of accounting clearly reflects the taxpayer's income. 
B) A taxpayer must request permission from the IRS to change its method of accounting for tax purposes. 
C) A taxpayer engaged in more than one business can use a different method of accounting for each business. 
D) Taxpayers must use the same method of accounting to compute taxable income as they use to compute financial statement income.

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.   Because of the difference between the GAAP rules and the tax rules for accounting for bad debts,Earl Company has a:

Accepted Answer

A) $54,600 permanent excess of book income over taxable income. 
B) $54,600 permanent excess of taxable income over book income. 
C) $54,600 temporary excess of taxable income over book income. 
D) $54,600 temporary excess of book income over taxable income. 
A) $54,600 permanent excess of book income over taxable income. 
B) $54,600 permanent excess of taxable income over book income. 
C) $54,600 temporary excess of taxable income over book income. 
D) $54,600 temporary excess of book income over taxable income.

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.

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

This year,Garfield Inc.generated a $25,000 net operating loss.Which of the following statements is false?

On December 19,2017,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 15,2018.Which of the following statements is false?

Rydel Inc.was incorporated on August 9 and elected to use a calendar year for tax purposes.Rydel must annualize the income reported on its first tax return for the short period from August 9 to December 31.

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.

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.

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

Tabco Inc.,a calendar year,accrual basis corporation,accrued $48,800 wage and salary expense and a corresponding liability at the end of 2017.How much of the accrued expense is deductible in 2017?

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:

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.

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

Murray Inc.,a calendar year,accrual basis corporation,accrued $946,000 salary and wage expense at the end of 2016.Murray paid the entire amount of the accrued liability on January 13,2017.Murray can deduct the entire $946,000 accrued expense in 2016.

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.

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.

Which of the following statements about methods of accounting 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. Because of the difference between the GAAP rules and the tax rules for accounting for bad debts,Earl Company has a:

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

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.

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

This year,Garfield Inc.generated a $25,000 net operating loss.Which of the following statements is false?

On December 19,2017,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 15,2018.Which of the following statements is false?

Rydel Inc.was incorporated on August 9 and elected to use a calendar year for tax purposes.Rydel must annualize the income reported on its first tax return for the short period from August 9 to December 31.

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.

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.

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

Tabco Inc.,a calendar year,accrual basis corporation,accrued $48,800 wage and salary expense and a corresponding liability at the end of 2017.How much of the accrued expense is deductible in 2017?

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:

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.

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

Murray Inc.,a calendar year,accrual basis corporation,accrued $946,000 salary and wage expense at the end of 2016.Murray paid the entire amount of the accrued liability on January 13,2017.Murray can deduct the entire $946,000 accrued expense in 2016.

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.

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.

Which of the following statements about methods of accounting 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. Because of the difference between the GAAP rules and the tax rules for accounting for bad debts,Earl Company has a:

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