Question 1

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

Accepted Answer

A)  A taxpayer who deducts an NOL against taxable income for a previous year receives an immediate benefit in the form of a tax refund. 
B)  The value of an NOL carryforward deducted next year is more than the value of an NOL carryforward deducted in five years. 
C)  The value of an NOL carryforward deduction depends on the taxpayer's discount rate and future marginal tax rate. 
D)  None of the above is false. 
A)  A taxpayer who deducts an NOL against taxable income for a previous year receives an immediate benefit in the form of a tax refund. 
B)  The value of an NOL carryforward deducted next year is more than the value of an NOL carryforward deducted in five years. 
C)  The value of an NOL carryforward deduction depends on the taxpayer's discount rate and future marginal tax rate. 
D)  None of the above is false.

Question 2

Which of the following statements concerning the cash method of accounting is true?

Accepted Answer

A)  A cash basis taxpayer who is in constructive receipt of an income item must recognize that income, even if the item is not in the taxpayer's actual possession. 
B)  A cash basis taxpayer can deduct the purchase cost of business equipment. 
C)  A cash basis taxpayer does not recognize gross income on receipt of an economic benefit unless that benefit consists of money. 
D)  A cash basis taxpayer can deduct interest when it is paid, regardless of the time period for which the interest is charged. 
A)  A cash basis taxpayer who is in constructive receipt of an income item must recognize that income, even if the item is not in the taxpayer's actual possession. 
B)  A cash basis taxpayer can deduct the purchase cost of business equipment. 
C)  A cash basis taxpayer does not recognize gross income on receipt of an economic benefit unless that benefit consists of money. 
D)  A cash basis taxpayer can deduct interest when it is paid, regardless of the time period for which the interest is charged.

Question 3

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 4

Goff Inc.'s taxable income is computed as follows. $$\begin{array} { l r } 
\text { Book income before tax } & \$ 1,016,200 \
\text { Net permanent differences } & 77,930 \
\text { Net temporary differences } & 475,200 \
\text { Taxable incorne } & \$ 1,569,330
\end{array}$$ Using a 34% rate, compute Goff's tax expense per books and tax payable.

Accepted Answer

A)  Tax expense per books $345,508; tax payable $372,004 
B)  Tax expense per books $345,508; tax payable $533,572 
C)  Tax expense per books $507,076; tax payable $372,004 
D)  Tax expense per books $372,004; tax payable $533,572 
A)  Tax expense per books $345,508; tax payable $372,004 
B)  Tax expense per books $345,508; tax payable $533,572 
C)  Tax expense per books $507,076; tax payable $372,004 
D)  Tax expense per books $372,004; tax payable $533,572

Question 5

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

Accepted Answer

A)  Cash receipts and disbursements method 
B)  Accrual method 
C)  Hybrid method that combines the cash and accrual methods 
D)  All of the above are permissible methods of accounting. 
A)  Cash receipts and disbursements method 
B)  Accrual method 
C)  Hybrid method that combines the cash and accrual methods 
D)  All of the above are permissible methods of accounting.

Question 6

Which of the following statements about short-period returns is true?

Accepted Answer

A)  If a taxpayer must file a short-period return because the IRS granted permission for a change in the taxpayer's year, the tax for the year must be based on annualized income. 
B)  The tax on a short-period return must be based on annualized income only if the taxpayer failed to obtain permission from the IRS to change its taxable year. 
C)  The tax on every short-period return must be based on annualized income. 
D)  None of the above is true. 
A)  If a taxpayer must file a short-period return because the IRS granted permission for a change in the taxpayer's year, the tax for the year must be based on annualized income. 
B)  The tax on a short-period return must be based on annualized income only if the taxpayer failed to obtain permission from the IRS to change its taxable year. 
C)  The tax on every short-period return must be based on annualized income. 
D)  None of the above is true.

Question 7

Marchal Inc., a calendar year, accrual basis taxpayer, made the following state income tax payments during 2016.
 $\begin{array} { l l l } 
\text { March } 11 & \text { Balarce due of } 2015 \text { tax } & 13,600 \
 \text { April } 2 & \text { Estimated } 2016 \text { tax payment } & 15,250 \

\text { Jure 2}&\text {  Estirmated 2016 tax payment }&15,250\
\text { Septermber 3}&\text {  Estirnated 2016 tax payrnent }&15,250\
\text { December 2}&\text {Estimated 2016  tax payment} & 15,250
\end{array}$

Accepted Answer

On December 28, Marchal's tax department

Question 8

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

Accepted Answer

A)  A deduction for the payment of a political contribution would be a subsidy for bad behavior. 
B)  A deduction for the payment of a political contribution would subsidize partisan political activities. 
C)  The payment of a political contribution is not an expense for financial reporting purposes. 
D)  A deduction for the payment of a fine or penalty would distort the measurement of taxable income. 
A)  A deduction for the payment of a political contribution would be a subsidy for bad behavior. 
B)  A deduction for the payment of a political contribution would subsidize partisan political activities. 
C)  The payment of a political contribution is not an expense for financial reporting purposes. 
D)  A deduction for the payment of a fine or penalty would distort the measurement of taxable income.

Question 9

Which of the following statements regarding book/tax differences is false?

Accepted Answer

A)  A permanent book/tax difference affects only the year in which it occurs. 
B)  A temporary book/tax difference affects two or more tax years. 
C)  Temporary book/tax differences arising in the current tax year will reverse in the future in one or more tax years. 
D)  The tax cost or benefit of a permanent book/tax difference is recouped over time. 
A)  A permanent book/tax difference affects only the year in which it occurs. 
B)  A temporary book/tax difference affects two or more tax years. 
C)  Temporary book/tax differences arising in the current tax year will reverse in the future in one or more tax years. 
D)  The tax cost or benefit of a permanent book/tax difference is recouped over time.

Question 10

Monro Inc. uses the accrual method of accounting. Here is a reconciliation of Monro's allowance for bad debts for the current year. $$\begin{array} { l l } 
\text { Begirruing allowarce for bad debts } & \$ 61,150 \
\text { Actual write-offs of accourts receivable during the year } & ( 80,000 ) \
\text { Addition to allowarce } & \$ \underline { 88,500 } \
\text { Erdirig allowarce for bad debts } & \$ 9,650 \
\hline
\end{array}$$ Because of the difference between the GAAP and the tax rules for accounting for bad debts, Monro Inc. has an:

Accepted Answer

A)  $8,500 permanent excess of book income over taxable income. 
B)  $8,500 permanent excess of taxable income over book income. 
C)  $8,500 temporary excess of taxable income over book income. 
D)  $8,500 temporary excess of book income over taxable income. 
A)  $8,500 permanent excess of book income over taxable income. 
B)  $8,500 permanent excess of taxable income over book income. 
C)  $8,500 temporary excess of taxable income over book income. 
D)  $8,500 temporary excess of book income over taxable income.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Tax expense per books is based on:

Accepted Answer

A)  Before-tax book income 
B)  Before-tax book income adjusted for permanent differences 
C)  Before-tax book income adjusted for temporary differences 
D)  Before-tax book income adjusted for both permanent and temporary differences 
A)  Before-tax book income 
B)  Before-tax book income adjusted for permanent differences 
C)  Before-tax book income adjusted for temporary differences 
D)  Before-tax book income adjusted for both permanent and temporary differences

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

Lawes Company, a cash basis business, mailed a $24,500 invoice to MWQ Partnership for professional services rendered. MWQ offered to pay the invoice by transferring 250 shares of ConAgri common stock to Lawes. The shares are selling on the NYSE at $98 per share. If Lawes accepts the shares in payment, it recognizes:

Accepted Answer

A)  No taxable income. 
B)  No taxable income until it sells the ConAgri shares for cash. 
C)  $24,500 taxable income. 
D)  It is illegal for a cash basis taxpayer to accept a noncash payment. 
A)  No taxable income. 
B)  No taxable income until it sells the ConAgri shares for cash. 
C)  $24,500 taxable income. 
D)  It is illegal for a cash basis taxpayer to accept a noncash payment.

Question 15

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

Accepted Answer

A)  According to the GAAP principle of conservatism, financial statements should report expenses and losses in the earliest reasonable year. 
B)  The GAAP principle of conservatism tries to prevent the overstatement of book income and the understatement of taxable income. 
C)  According to the tax law principle of conservatism, taxpayers should deduct expenses and losses in the earliest reasonable year. 
D)  According to the tax law principle of conservatism, taxpayers should deduct expenses and losses in the same year as they are reported on the taxpayers' financial statements. 
A)  According to the GAAP principle of conservatism, financial statements should report expenses and losses in the earliest reasonable year. 
B)  The GAAP principle of conservatism tries to prevent the overstatement of book income and the understatement of taxable income. 
C)  According to the tax law principle of conservatism, taxpayers should deduct expenses and losses in the earliest reasonable year. 
D)  According to the tax law principle of conservatism, taxpayers should deduct expenses and losses in the same year as they are reported on the taxpayers' financial statements.

Question 16

B&B Inc.'s taxable income is computed as follows. $$\begin{array} { l r } 
\text { Book income before tax } & \mathbf { \$ 9 , 8 8 2 , 5 9 0 } \
\text { Net permarnent differences } & 447,600 \
\text { Net temporary differences } & ( 802,100) \
\text { Taxable income } & \$ 9,528,090
\end{array}$$ B&B's tax rate is 34%. Which of the following statements is true?

Accepted Answer

A)  The temporary differences caused a $272,714 net decrease in B&B's deferred tax liabilities. 
B)  The permanent differences caused a $152,184 net increase in B&B's deferred tax assets. 
C)  The permanent differences caused a $152,184 net decrease in B&B's deferred tax assets. 
D)  The temporary differences caused a $272,714 net increase in B&B's deferred tax liabilities. 
A)  The temporary differences caused a $272,714 net decrease in B&B's deferred tax liabilities. 
B)  The permanent differences caused a $152,184 net increase in B&B's deferred tax assets. 
C)  The permanent differences caused a $152,184 net decrease in B&B's deferred tax assets. 
D)  The temporary differences caused a $272,714 net increase in B&B's deferred tax liabilities.

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

Which of the following statements concerning the cash method of accounting is true?

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

Goff Inc.'s taxable income is computed as follows. Book income before tax \ 1,016,200 Net permanent differences 77,930 Net temporary differences 475,200 Taxable incorne \ 1,569,330 Using a 34% rate, compute Goff's tax expense per books and tax payable.

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

Which of the following statements about short-period returns is true?

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

Which of the following statements regarding book/tax differences is false?

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

Tax expense per books is based on:

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

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

B&B Inc.'s taxable income is computed as follows. Book income before tax Net permarnent differences 447,600 Net temporary differences (802,100) Taxable income \ 9,528,090 B&B's tax rate is 34%. Which of the following statements is true?

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 statements about an NOL deduction is false?

Which of the following statements concerning the cash method of accounting is true?

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

Goff Inc.'s taxable income is computed as follows. Book income before tax \ 1,016,200 Net permanent differences 77,930 Net temporary differences 475,200 Taxable incorne \ 1,569,330 Using a 34% rate, compute Goff's tax expense per books and tax payable.

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

Which of the following statements about short-period returns is true?

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

Which of the following statements regarding book/tax differences is false?

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

Tax expense per books is based on:

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

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

B&B Inc.'s taxable income is computed as follows. Book income before tax Net permarnent differences 447,600 Net temporary differences (802,100) Taxable income \ 9,528,090 B&B's tax rate is 34%. Which of the following statements is true?

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