Question 1

This year, Garfield Inc. generated a $25,000 net operating loss. Which of the following statements is false?

Accepted Answer

A)  If Garfield can carry the entire NOL back to deduct against prior year taxable income, the NOL will have no deferred tax consequences. 
B)  If Garfield can't use any of the NOL as a carryback deduction, the NOL will result in a deferred tax liability. 
C)  Garfield can elect to give up the carryback of the NOL. 
D)  If Garfield can't use any of the NOL as a carryback deduction, it can carry the NOL forward for 20 years. 
A)  If Garfield can carry the entire NOL back to deduct against prior year taxable income, the NOL will have no deferred tax consequences. 
B)  If Garfield can't use any of the NOL as a carryback deduction, the NOL will result in a deferred tax liability. 
C)  Garfield can elect to give up the carryback of the NOL. 
D)  If Garfield can't use any of the NOL as a carryback deduction, it can carry the NOL forward for 20 years. B

Question 2

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. C

Question 3

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. C

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Goff Inc.'s taxable income is computed as follows.   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 6

On December 19, 2012, Acme Inc., an accrual basis corporation, accrued $50,000 compensation expense for a routine year-end bonus payable to Mrs. Tabor, who is Acme's CFO. Acme paid the $50,000 to Mrs. Tabor on January 15, 2013. Which of the following statements is false?

Accepted Answer

A)  If Mrs. Tabor owns no stock in Acme (i.e. is not a related party), Acme can deduct the accrued expense in 2012. 
B)  Mrs. Tabor includes her $50,000 bonus in 2013 gross income. 
C)  If Mrs. Tabor owns 75 percent of Acme's stock (i.e. is a related party), Acme can't deduct the expense until 2013. 
D)  If Mrs. Tabor owns 75 percent of Acme's stock (i.e. is a related party), Acme can never deduct the bonus expense. 
A)  If Mrs. Tabor owns no stock in Acme (i.e. is not a related party), Acme can deduct the accrued expense in 2012. 
B)  Mrs. Tabor includes her $50,000 bonus in 2013 gross income. 
C)  If Mrs. Tabor owns 75 percent of Acme's stock (i.e. is a related party), Acme can't deduct the expense until 2013. 
D)  If Mrs. Tabor owns 75 percent of Acme's stock (i.e. is a related party), Acme can never deduct the bonus expense.

Question 7

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 8

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?

Accepted Answer

A)  CSQ's tax payable is $448,980. 
B)  CSQ's tax expense per books is $452,585. 
C)  CSQ's tax payable is $505,120. 
D)  CSQ's tax expense per books is $485,205. 
A)  CSQ's tax payable is $448,980. 
B)  CSQ's tax expense per books is $452,585. 
C)  CSQ's tax payable is $505,120. 
D)  CSQ's tax expense per books is $485,205.

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

Zephex is a calendar year corporation. On December 1, 2012, 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, 2012, through March 31, 2013. On December 2, 2012, Zephex billed a client $38,250 for services rendered to the client in November. The client did not pay the bill until January 14, 2013.
a. If Zephex is a cash basis taxpayer, how much 2012 income should it recognize with respect to the above transactions?
b. If Zephex is an accrual basis taxpayer, how much 2012 book income should it report and how much 2012 taxable income should it recognize with respect to the above transactions?

Accepted Answer

a. Zephex should recognize $12,000 rent

Question 11

Poole Company, a calendar year taxpayer, incurred $589 of long-distance telephone charges in December 2012 and mailed a check to the telephone company on January 4, 2013. If Poole is a cash basis taxpayer, it reports a $589 tax deduction in 2013.

Accepted Answer

A) True 
 B)False

Question 12

GH&F is a calendar year, accrual basis taxpayer. In October 2012, 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, 2012. As a result of the payment, GH&F should report:

Accepted Answer

A)  $2,000 book income and taxable income 
B)  $2,000 book income and $18,000 taxable income 
C)  $18,000 book income and taxable income 
D)  None of the above 
A)  $2,000 book income and taxable income 
B)  $2,000 book income and $18,000 taxable income 
C)  $18,000 book income and taxable income 
D)  None of the above

Question 13

On December 19, 2012, 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, 2013. 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 2012. 
B)  If Mr. Craig and Logo are related parties, Mr. Craig must include his $50,000 bonus in 2012 gross income. 
C)  Regardless of whether Logo and Mr. Craig are related parties, Logo can't deduct the accrued compensation expense in 2012. 
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 2012 or 2013. 
A)  If Mr. Craig and Logo are not related parties, Logo can deduct the accrued expense in 2012. 
B)  If Mr. Craig and Logo are related parties, Mr. Craig must include his $50,000 bonus in 2012 gross income. 
C)  Regardless of whether Logo and Mr. Craig are related parties, Logo can't deduct the accrued compensation expense in 2012. 
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 2012 or 2013.

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

Marchal Inc., a calendar year, accrual basis taxpayer, made the following state income tax payments during 2012.
   On December 28, Marchal's tax department calculated that the corporation's actual 2012 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 2012 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 2012 federal deduction for state income tax.

Accepted Answer

a. Marchal's state income tax

Question 18

Which of the following statements about tax expense per books and tax payable is false?

Accepted Answer

A)  If a corporation has no temporary differences between book income and taxable income, tax expense per books equals tax payable. 
B)  If a corporation has no permanent differences between book income and taxable income, tax expense per books equals tax payable. 
C)  Tax expense per books and tax payable are calculated from the same rate schedule. 
D)  Statements B. and C. are false. 
A)  If a corporation has no temporary differences between book income and taxable income, tax expense per books equals tax payable. 
B)  If a corporation has no permanent differences between book income and taxable income, tax expense per books equals tax payable. 
C)  Tax expense per books and tax payable are calculated from the same rate schedule. 
D)  Statements B. and C. are false.

Question 19

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 20

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.

This year, Garfield Inc. generated a $25,000 net operating loss. Which of the following statements is false?

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

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

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

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

On December 19, 2012, Acme Inc., an accrual basis corporation, accrued $50,000 compensation expense for a routine year-end bonus payable to Mrs. Tabor, who is Acme's CFO. Acme paid the $50,000 to Mrs. Tabor on January 15, 2013. Which of the following statements is false?

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?

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?

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

Poole Company, a calendar year taxpayer, incurred $589 of long-distance telephone charges in December 2012 and mailed a check to the telephone company on January 4, 2013. If Poole is a cash basis taxpayer, it reports a $589 tax deduction in 2013.

On December 19, 2012, 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, 2013. Which of the following statements is true?

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

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

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

Which of the following statements about tax expense per books and tax payable is false?

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

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

This year, Garfield Inc. generated a $25,000 net operating loss. Which of the following statements is false?

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

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

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

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

On December 19, 2012, Acme Inc., an accrual basis corporation, accrued $50,000 compensation expense for a routine year-end bonus payable to Mrs. Tabor, who is Acme's CFO. Acme paid the $50,000 to Mrs. Tabor on January 15, 2013. Which of the following statements is false?

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?

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?

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

Poole Company, a calendar year taxpayer, incurred $589 of long-distance telephone charges in December 2012 and mailed a check to the telephone company on January 4, 2013. If Poole is a cash basis taxpayer, it reports a $589 tax deduction in 2013.

On December 19, 2012, 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, 2013. Which of the following statements is true?

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

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

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

Which of the following statements about tax expense per books and tax payable is false?

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

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