Exam 6: Taxable Income From Business Operations

A taxpayer that operates more than one business may use a different method of accounting for each business.

GH&F is a calendar year,accrual basis taxpayer.In October 2017,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 1,2017.As a result of the payment,GH&F should report:

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?

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?

Addis Company operates a retail men's clothing store.Because Addis has merchandise inventory,it must use:

CSQ Inc.reported $1,339,700 book income before tax this year.CSQ had $46,600 favorable permanent differences and $103,500 unfavorable temporary differences between book income and taxable income.Assuming a 35 percent tax rate,which of the following statements is true?

At the end of its taxable year,Gong Company accrued an expense for an account payable to Mexance Inc.Even if Gong and Mexance are related parties,Gong can deduct the accrued expense if Mexance also uses the accrual method of accounting for tax purposes.

Eaton Inc.is a calendar year,cash basis taxpayer.On October 1,2017,Eaton paid $4,800 to a security firm for night-time and weekend security services for the 24-month period beginning with October.Which of the following is true?

Jethro Company,an accrual basis taxpayer,had a $10,000 overdue account payable to a major supplier.The supplier agreed to settle the account for $9,000 cash from Jethro.Which of the following statements is true?

A taxpayer that wants to change its taxable year from a fiscal year to a calendar year is not required to receive permission from the IRS to make the change.

HHF Corporation received permission from the IRS to change its taxable year from a fiscal year ending August 31 to a calendar year.Consequently,HHF filed a short-period return for the four-month period from September 1 through December 31.The taxable income reported on the return was $56,000.Use the corporate tax rates in Appendix C of the text to compute HHF's tax on this income (to the nearest dollar).

Zephex is a calendar year corporation.On December 1,2017,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 1,2017,through March 31,2018.On December 2,2017,Zephex billed a client $38,250 for services rendered to the client in November.The client did not pay the bill until January 14,2018. a.If Zephex is a cash basis taxpayer,how much 2017 income should it recognize with respect to the above transactions? b.If Zephex is an accrual basis taxpayer,how much 2017 book income should it report and how much 2017 taxable income should it recognize with respect to the above transactions?

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

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

Krasco Inc.'s auditors prepared the following reconciliation between book and taxable income.The corporation has a 34% tax rate. a.Compute Krasco's tax expense per books and tax payable. b.Compute Krasco's net increase in deferred tax assets or deferred tax liabilities (identify which)for the year.

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

For its first taxable year,UY Products Inc.generated a $124,950 net operating loss.The loss resulted in a deferred tax liability that will reverse over future years in which UY is allowed an NOL carryforward deduction.

Why does the federal tax law disallow a business deduction for a fine or penalty paid to any government?

Tax expense per books is based on:

Marchal Inc.,a calendar year,accrual basis taxpayer,made the following state income tax payments during 2017. On December 28,Marchal's tax department calculated that the corporation's actual 2017 state income tax liability was $67,140.Consequently,Marchal accrued a $6,140 liability for state income tax payable at year end. a.Compute Marchal's 2017 state income tax expense per books. b.If Marchal has not adopted the recurring item exception as its method of accounting for state income taxes,compute Marchal's 2017 federal deduction for state income tax.