Question 1

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

Accepted Answer

A) Rent expense 
B) Interest expense 
C) Client entertainment 
D) Salary expense 
A) Rent expense 
B) Interest expense 
C) Client entertainment 
D) Salary expense

Question 2

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

Accepted Answer

A) The doctrine applies to cash basis taxpayers. 
B) The doctrine relates to the time period variable in tax planning. 
C) Application of the doctrine by the IRS is subjective and depends on the facts and circumstances of each case. 
D) None of the above is false. 
A) The doctrine applies to cash basis taxpayers. 
B) The doctrine relates to the time period variable in tax planning. 
C) Application of the doctrine by the IRS is subjective and depends on the facts and circumstances of each case. 
D) None of the above is false.

Question 3

An accrual basis taxpayer that accrues a liability at year-end for unpaid state income tax can deduct the accrued tax expense in the computation of federal taxable income.

Accepted Answer

A) True 
 B)False

Question 4

Valley Inc.incurred a $71,400 net operating loss this year.Which of the following statements is true?

Accepted Answer

A) Valley can use the NOL only as a carryforward deduction. 
B) Valley can use the NOL only as a carryback deduction. 
C) Valley can elect to use the NOL as a carryforward deduction. 
D) None of the above is true. 
A) Valley can use the NOL only as a carryforward deduction. 
B) Valley can use the NOL only as a carryback deduction. 
C) Valley can elect to use the NOL as a carryforward deduction. 
D) None of the above is true.

Question 5

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?

Accepted Answer

A) A calendar year. 
B) Fiscal year ending June 30. 
C) Fiscal year ending August 31. 
D) Pim can adopt a calendar year or any fiscal year as its taxable year. 
A) A calendar year. 
B) Fiscal year ending June 30. 
C) Fiscal year ending August 31. 
D) Pim can adopt a calendar year or any fiscal year as its taxable year.

Question 6

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

Accepted Answer

A) The permanent differences caused a $26,496 net increase in Goff's deferred tax liabilities. 
B) The permanent differences caused a $26,496 net increase in Goff's deferred tax assets. 
C) The temporary differences caused a $161,568 net increase in Goff's deferred tax assets. 
D) The temporary differences caused a $161,568 net increase in Goff's deferred tax liabilities. 
A) The permanent differences caused a $26,496 net increase in Goff's deferred tax liabilities. 
B) The permanent differences caused a $26,496 net increase in Goff's deferred tax assets. 
C) The temporary differences caused a $161,568 net increase in Goff's deferred tax assets. 
D) The temporary differences caused a $161,568 net increase in Goff's deferred tax liabilities.

Question 7

Randall Company uses the calendar year and the cash method of accounting.On December 31,2017,Randall made the following cash payments.To what extent can Randall deduct the payments in 2017?
a.$50,000 for a two-year warehouse lease beginning on March 1,2018.
b.$95,000 of inventory items held for sale to customers.
c.$1,800 to purchase a new refrigerator for the employees' lounge.The refrigerator was delivered on February 1,2018.
d.$5,000 compensation to a consultant who spent two weeks in January 2018 analyzing Randall's payroll system.
e.$22,000 property tax to the local government for the first six months of 2018.

Accepted Answer

a.None of the payment is deduc

Question 8

JKL Inc.and Matthew Inc.enter into a business transaction.The two corporations are related parties for tax purposes.Which of the following statements is true?

Accepted Answer

A) JKL and Matthew must account for the transaction using the same method of accounting. 
B) The IRS has the right to reallocate income from the transaction to prevent distortion. 
C) The cash method of accounting must be used to account for such transactions. 
D) JKL and Matthew must request permission from the IRS to engage in the related party transaction. 
A) JKL and Matthew must account for the transaction using the same method of accounting. 
B) The IRS has the right to reallocate income from the transaction to prevent distortion. 
C) The cash method of accounting must be used to account for such transactions. 
D) JKL and Matthew must request permission from the IRS to engage in the related party transaction.

Question 9

Assuming a 30% marginal tax rate,compute the after-tax cost of the following business expenses.
a.$12,300 meals and entertainment.
b.$42,000 rent on factory equipment.
c.$8,050 premium for key-person life insurance.

Accepted Answer

a.$10,455 ($12,300 expense − $

Question 10

Poole Services,a calendar year taxpayer,billed a client for $1,675 of services on November 30,2017,and received a check in full payment from the client on January 12,2018.If Poole is a cash basis taxpayer,it reports $1,675 taxable income in 2017.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) Tax expense per books $3,360,081; tax payable $3,239,551. 
B) Tax expense per books $3,512,265; tax payable $3,239,551. 
C) Tax expense per books $3,512,265; tax payable $3,512,265. 
D) Tax expense per books $3,087,367; tax payable $3,087,367. 
A) Tax expense per books $3,360,081; tax payable $3,239,551. 
B) Tax expense per books $3,512,265; tax payable $3,239,551. 
C) Tax expense per books $3,512,265; tax payable $3,512,265. 
D) Tax expense per books $3,087,367; tax payable $3,087,367.

Question 12

Toro Inc.received permission from the IRS to change its taxable year from a fiscal year ending July 31 to a calendar year.Consequently,Toro filed a short-period return for the five-month period from August 1 through December 31.The taxable income reported on the return was $65,000.Use the corporate tax rates in Appendix C of the text to compute Toro's tax on this income (to the nearest dollar).

Accepted Answer

A) $11,250 
B) $18,371 
C) $25,350 
D) $44,090 
A) $11,250 
B) $18,371 
C) $25,350 
D) $44,090

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The tax law does not allows deductions based on estimated expenses that result in an allowance or reserve for financial statement purposes.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) Under the cash method,annual taxable income equals annual net cash inflow. 
B) The revenue from a sale of goods is recognized when payment is received. 
C) An expense is recognized when the expense is paid. 
D) None of the above is false. 
A) Under the cash method,annual taxable income equals annual net cash inflow. 
B) The revenue from a sale of goods is recognized when payment is received. 
C) An expense is recognized when the expense is paid. 
D) None of the above is false.

Question 16

On December 19,2017,Logo Inc.,an accrual basis corporation,accrued $50,000 compensation expense for a routine year-end bonus payable to Mr.Craig,who is Logo's CFO.Logo paid the $50,000 to Mr.Craig on April 25,2018.Which of the following statements is true?

Accepted Answer

A) If Mr.Craig and Logo are not related parties,Logo can deduct the accrued expense in 2017. 
B) If Mr.Craig and Logo are related parties,Mr.Craig must include his $50,000 bonus in 2017 gross income. 
C) Regardless of whether Logo and Mr.Craig are related parties,Logo can't deduct the accrued compensation expense in 2017. 
D) If Mr.Craig and Logo are not related parties,Mr.Craig can elect to include the $50,000 bonus in gross income in either 2017 or 2018. 
A) If Mr.Craig and Logo are not related parties,Logo can deduct the accrued expense in 2017. 
B) If Mr.Craig and Logo are related parties,Mr.Craig must include his $50,000 bonus in 2017 gross income. 
C) Regardless of whether Logo and Mr.Craig are related parties,Logo can't deduct the accrued compensation expense in 2017. 
D) If Mr.Craig and Logo are not related parties,Mr.Craig can elect to include the $50,000 bonus in gross income in either 2017 or 2018.

Question 17

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?

Accepted Answer

A) Unex can deduct the accrued expense only if it makes a written disclosure to the IRS of the contingent liability. 
B) Unex will be allowed a deduction in the year in which its liability for the settlement becomes fixed and the amount of the settlement can be estimated with reasonable accuracy. 
C) Unex will be allowed a deduction in the year that it actually pays the settlement to the employee. 
D) Unex can never deduct any expense in connection with this lawsuit. 
A) Unex can deduct the accrued expense only if it makes a written disclosure to the IRS of the contingent liability. 
B) Unex will be allowed a deduction in the year in which its liability for the settlement becomes fixed and the amount of the settlement can be estimated with reasonable accuracy. 
C) Unex will be allowed a deduction in the year that it actually pays the settlement to the employee. 
D) Unex can never deduct any expense in connection with this lawsuit.

Question 18

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?

Accepted Answer

A) The receipt has no effect on current year book income. 
B) The receipt has no effect on current year taxable income. 
C) Ipenex must recognize $17,500 taxable income under the tax benefit rule. 
D) Ipenex credited the receipt to its allowance for bad debts. 
A) The receipt has no effect on current year book income. 
B) The receipt has no effect on current year taxable income. 
C) Ipenex must recognize $17,500 taxable income under the tax benefit rule. 
D) Ipenex credited the receipt to its allowance for bad debts.

Question 19

Derik Inc.,a calendar year,accrual basis corporation,accrued $278,000 vacation pay expense and a corresponding liability at the end of 2017.Derik paid $22,000 of the accrued liability to employees who took vacation between January 1 and March 15,2018.How much of the accrued vacation pay expense is deductible in 2017?

Accepted Answer

A) None of the accrued expense is deductible in 2017. 
B) $22,000. 
C) $256,000. 
D) The entire accrued expense is deductible in 2017. 
A) None of the accrued expense is deductible in 2017. 
B) $22,000. 
C) $256,000. 
D) The entire accrued expense is deductible in 2017.

Question 20

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

Accepted Answer

A) True 
 B)False

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

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

An accrual basis taxpayer that accrues a liability at year-end for unpaid state income tax can deduct the accrued tax expense in the computation of federal taxable income.

Valley Inc.incurred a $71,400 net operating loss this year.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?

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

JKL Inc.and Matthew Inc.enter into a business transaction.The two corporations are related parties for tax purposes.Which of the following statements is true?

Assuming a 30% marginal tax rate,compute the after-tax cost of the following business expenses. a.$12,300 meals and entertainment. b.$42,000 rent on factory equipment. c.$8,050 premium for key-person life insurance.

Poole Services,a calendar year taxpayer,billed a client for $1,675 of services on November 30,2017,and received a check in full payment from the client on January 12,2018.If Poole is a cash basis taxpayer,it reports $1,675 taxable income in 2017.

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

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

The tax law does not allows deductions based on estimated expenses that result in an allowance or reserve for financial statement purposes.

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

On December 19,2017,Logo Inc.,an accrual basis corporation,accrued $50,000 compensation expense for a routine year-end bonus payable to Mr.Craig,who is Logo's CFO.Logo paid the $50,000 to Mr.Craig on April 25,2018.Which of the following statements is true?

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?

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?

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

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

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

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

An accrual basis taxpayer that accrues a liability at year-end for unpaid state income tax can deduct the accrued tax expense in the computation of federal taxable income.

Valley Inc.incurred a $71,400 net operating loss this year.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?

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

JKL Inc.and Matthew Inc.enter into a business transaction.The two corporations are related parties for tax purposes.Which of the following statements is true?

Assuming a 30% marginal tax rate,compute the after-tax cost of the following business expenses. a.$12,300 meals and entertainment. b.$42,000 rent on factory equipment. c.$8,050 premium for key-person life insurance.

Poole Services,a calendar year taxpayer,billed a client for $1,675 of services on November 30,2017,and received a check in full payment from the client on January 12,2018.If Poole is a cash basis taxpayer,it reports $1,675 taxable income in 2017.

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

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

The tax law does not allows deductions based on estimated expenses that result in an allowance or reserve for financial statement purposes.

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

On December 19,2017,Logo Inc.,an accrual basis corporation,accrued $50,000 compensation expense for a routine year-end bonus payable to Mr.Craig,who is Logo's CFO.Logo paid the $50,000 to Mr.Craig on April 25,2018.Which of the following statements is true?

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?

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?

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

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