Exam 6: Taxable Income From Business Operations

Tonto Inc. has used a calendar year as its taxable year since its incorporation in 1990. Tonto has an excellent business reason for changing to a fiscal year ending May 31. 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?

Elcox Company, a calendar year, cash basis taxpayer, paid a $6,340 premium to purchase a casualty insurance policy with a 36-month term. Elcox can deduct $6,340 in the year of payment.

Which of the following statements about the domestic production activities deduction 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?

Poole Services, a calendar year taxpayer, billed a client for $1,675 of services on November 30, 2013, and received a check in full payment from the client on January 12, 2014. If Poole is a cash basis taxpayer, it reports $1,675 taxable income in 2013.

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

Which of the following statements most accurately defines taxable income from business operations?

GH&F is a calendar year, accrual basis taxpayer. In October 2013, 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, 2013. As a result of the payment, GH&F should report:

Pozzi Company, a cash basis business, received $16,930 cash as payment on a loan Pozzi made to a business associate two years ago. The payment consisted of a $15,000 principal payment and $1,930 interest. On receipt of the cash, Pozzi recognizes:

According to your textbook, business managers prefer to:

Laine Services, a calendar year taxpayer, billed a client for $8,450 of services on November 30, 2013, and received a check in full payment from the client on January 12, 2014. If Poole is an accrual basis taxpayer, it reports $8,450 taxable income in 2013.

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

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

Taxable income is defined as gross income minus allowable deductions and credits.

According to the GAAP principle of conservatism, firms should delay the realization of uncertain revenues and gains and accelerate the realization of uncertain expenses and losses.

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).

Porter Inc. incurred a $20,000 expense only $13,400 of which was deductible. Which of the following is true?

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

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