Exam 6: Taxable Income From Business Operations

Accurate measurement of taxable income is the only objective of the federal income tax laws.

For tax purposes,income is recognized when all events have occurred that fix the taxpayer's right to receive the income and the amount of income can be determined with reasonable accuracy.

The after-tax cost of a dollar of meal and entertainment expense is 80 cents for a taxpayer with a 40% marginal tax rate.

The principle of conservatism reflected by GAAP is identical to the principle of conservatism reflected in the tax law.

Poole Company,a calendar year taxpayer,incurred $589 of long-distance telephone charges in December 2017 and mailed a check to the telephone company on January 4,2018.If Poole is a cash basis taxpayer,it reports a $589 tax deduction in 2018.

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

Which of the following businesses is prohibited from using the cash receipts and disbursement method of accounting for tax purposes?

Income tax expense per books is based on book income adjusted for all book/tax differences.

Taxpayers that sell merchandise to their customers must use the accrual method to account for purchases and sales of merchandise.

Which of the following statements about an NOL deduction is false?

On December 12,2017,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?

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

Hitz Company,a calendar year,accrual basis taxpayer,recorded $1,735 accrued interest expense and $1,735 accrued interest payable when it closed its books on December 31.The interest relates to a loan from First State Bank and accrued over the last two months of the year.Which of the following statements is true?

For federal tax purposes,gross income from the sale of tangible goods is reduced by the seller's cost of goods sold.

Ladow Inc.incurred a $32,000 net operating loss in 2017.Ladow's 2015 taxable income was $28,000,and its 2016 taxable income was $149,200.Use the corporate tax rates included in Appendix C to compute Ladow's refund from an NOL carryback deduction.

Keagan Company,a calendar year taxpayer,incurred $1,490 of long-distance telephone charges in December 2017 and mailed a check to the telephone company on January 4,2018.If Poole is an accrual basis taxpayer,it reports a $1,490 tax deduction in 2018.