Exam 6: Taxable Income From Business Operations

Huml Inc. could not deduct an accrued expense because of the all-events test. As a result, Huml has a permanent unfavorable book/tax difference.

Bolton Inc., a calendar year taxpayer, generated a $296,400 net operating loss this year. Bolton can carry the loss back five years and forward 20 years for tax purposes.

Taxpayers that sell merchandise to their customers must use the accrual method as their overall method of accounting.

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

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

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

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?

Tabco Inc., a calendar year, accrual basis corporation, accrued $48,800 wage and salary expense and a corresponding liability at the end of 2013. How much of the accrued expense is deductible in 2013?

Rydel Inc. was incorporated on August 9 and elected to use a calendar year for tax purposes. Rydel must annualize the income reported on its first tax return for the short period from August 9 to December 31.

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?

Which of the following statements about the all-events test is false?

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

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

Jackey Company, a calendar year, accrual basis taxpayer, did not pay the $44,200 December rent on its commercial office space until January 8. As result, Jackey's accountant made a routine year-end accrual of $44,200 rent expense. Which of the following statements 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?

Murray Inc., a calendar year, accrual basis corporation, accrued $946,000 accrued salary and wage expense at the end of 2013. Murray paid the entire amount of the accrued liability on January 13, 2014. Murray can deduct the entire $946,000 accrued expense in 2013.

On December 19, 2013, 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, 2014. Which of the following statements is false?

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

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.

Monro Inc. uses the accrual method of accounting. Here is a reconciliation of Monro's allowance for bad debts for the current year. Which of the following statements is true?