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?

Earl Company uses the accrual method of accounting.Here is a reconciliation of Earl's allowance for bad debts for the current year. Which of the following statements is true?

Slumar,an accrual basis,calendar year corporation,reported $7,289,200 net income before tax on its financial statement prepared in accordance with GAAP.The corporate records reveal the following information. The allowance for bad debts on January 1 was $104,700.Write-offs for the year totaled $113,228,and the addition to the allowance for the year was $105,000. Slumar earned $3,072,800 net income from its U.S.manufacturing activity and $4,101,700 from its foreign manufacturing activity. At its December 16 meeting,Slumar's board of directors authorized a $100,000 salary bonus for the corporation's CEO.Slumar paid the bonus to the CEO on January 4.The CEO owns 62% of Slumar's outstanding stock. Slumar was incorporated last year.On its first tax return,it reported a $334,712 net operating loss. Compute Slumar's taxable income.

Which of the following methods of accounting is never permissible for computing taxable income?

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

Which of the following statements concerning the principle of accounting conservatism is true?

Southlawn Inc.'s taxable income is computed as follows. Using a 34% rate,compute Southlawn's tax expense per books and tax payable.

According to the GAAP principle of conservatism,firms should delay the realization of uncertain revenues and gains and accelerate the realization of uncertain expenses and losses.

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

A firm's choice of taxable year is usually dictated by the annual operating cycle of the firm's business.

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

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

Which of the following statements most accurately defines taxable income from business operations?

B&B Inc.'s taxable income is computed as follows. B&B's tax rate is 34%.Which of the following statements is true?

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

Monro Inc.uses the accrual method of accounting.Here is a reconciliation of Monro's allowance for bad debts for the current year. Which of the following statements is true?

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?

Welch Inc.has used a fiscal ending September 30 as its taxable year since its incorporation in 1988.The shareholders have decided to shut down Welch's business and dissolve the corporation on March 31.Which of the following statements is false?

Bendom Inc,a calendar year,accrual basis corporation,hired Rukel Company to provide professional services.Rukel completed the services on November 30,2017,and immediately sent Bendom a bill for $37,750.Bendom paid the bill on January 4,2018.Which of the following statements is false?

Monro Inc.uses the accrual method of accounting.Here is a reconciliation of Monro's allowance for bad debts for the current year. Because of the difference between the GAAP and the tax rules for accounting for bad debts,Monro Inc.has an: