Question 1

A firm's choice of taxable year is usually dictated by the annual operating cycle of the firm's business.

Accepted Answer

A) True 
 B)False

Question 2

A taxpayer that operates more than one business may use a different method of accounting for each business.

Accepted Answer

A) True 
 B)False

Question 3

Timm Inc., a calendar year, accrual basis taxpayer, is being sued by a customer who was injured when she tripped over a loose carpet in Timm's retail store. Timm's auditors required the corporation to accrue a $500,000 contingent liability and current year expense. Which of the following statements is true?

Accepted Answer

A) Timm can deduct the $500,000 accrued expense. 
B) Timm can never deduct the $500,000 expense. 
C) Timm can deduct the expense in the year in which the liability becomes fixed and determinable. 
D) Timm can deduct the expense in the year of payment. 
A) Timm can deduct the $500,000 accrued expense. 
B) Timm can never deduct the $500,000 expense. 
C) Timm can deduct the expense in the year in which the liability becomes fixed and determinable. 
D) Timm can deduct the expense in the year of payment.

Question 4

Monro Inc. uses the accrual method of accounting. Here is a reconciliation of Monro's allowance for bad debts for the current year.   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 5

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.

Question 6

PPQ Inc. wants to change from a hybrid method of accounting to the accrual method of accounting for tax purposes. PPQ can't make this change without receiving permission from the IRS.

Accepted Answer

A) True 
 B)False

Question 7

On December 12, 2013, 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?

Accepted Answer

A) According to the constructive receipt doctrine, Hook must recognize $5,600 income in 2013. 
B) According to the substance over form doctrine, Hook does not recognize $5,600 income until 2013. 
C) As a cash basis taxpayer, Hook does not recognize $5,600 income until 2014. 
D) As a cash basis taxpayer, Hook can elect to recognize $5,600 income in either 2013 or 2014. 
A) According to the constructive receipt doctrine, Hook must recognize $5,600 income in 2013. 
B) According to the substance over form doctrine, Hook does not recognize $5,600 income until 2013. 
C) As a cash basis taxpayer, Hook does not recognize $5,600 income until 2014. 
D) As a cash basis taxpayer, Hook can elect to recognize $5,600 income in either 2013 or 2014.

Question 8

Keagan Company, a calendar year taxpayer, incurred $1,490 of long-distance telephone charges in December 2013 and mailed a check to the telephone company on January 4, 2014. If Poole is an accrual basis taxpayer, it reports a $1,490 tax deduction in 2014.

Accepted Answer

A) True 
 B)False

Question 9

A cash basis taxpayer must account for any prepayment of interest expense under the accrual method.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) The permanent differences caused a $174,080 net increase in Southlawn's deferred tax liabilities. 
B) The permanent differences caused a $174,080 net decrease in Southlawn's deferred tax liabilities. 
C) The temporary differences caused a $64,260 net increase in Southlawn's deferred tax liabilities. 
D) The temporary differences caused a $64,260 net decrease in Southlawn's deferred tax liabilities. 
A) The permanent differences caused a $174,080 net increase in Southlawn's deferred tax liabilities. 
B) The permanent differences caused a $174,080 net decrease in Southlawn's deferred tax liabilities. 
C) The temporary differences caused a $64,260 net increase in Southlawn's deferred tax liabilities. 
D) The temporary differences caused a $64,260 net decrease in Southlawn's deferred tax liabilities.

Question 12

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 13

Addis Company operates a retail men's clothing store. Because Addis has merchandise inventory, it must use:

Accepted Answer

A) The accrual method as its overall method of accounting. 
B) The accrual method to account only for sales of merchandise. 
C) The accrual method to account only for purchases of merchandise. 
D) The accrual method to account for both sales and purchases of merchandise. 
A) The accrual method as its overall method of accounting. 
B) The accrual method to account only for sales of merchandise. 
C) The accrual method to account only for purchases of merchandise. 
D) The accrual method to account for both sales and purchases of merchandise.

Question 14

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

Accepted Answer

A) Tax expense per books $3,360,081; tax payable $3,239,551 
B) Tax expense per books $3,512,265; tax payable $3,239,551 
C) Tax expense per books $3,512,265; tax payable $3,512,265 
D) Tax expense per books $3,087,367; tax payable $3,087,367 
A) Tax expense per books $3,360,081; tax payable $3,239,551 
B) Tax expense per books $3,512,265; tax payable $3,239,551 
C) Tax expense per books $3,512,265; tax payable $3,512,265 
D) Tax expense per books $3,087,367; tax payable $3,087,367

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) Under the cash method, annual taxable income equals annual net cash inflow. 
B) The revenue from a sale of goods is recognized when payment is received. 
C) An expense is recognized when the expense is paid. 
D) None of the above is false. 
A) Under the cash method, annual taxable income equals annual net cash inflow. 
B) The revenue from a sale of goods is recognized when payment is received. 
C) An expense is recognized when the expense is paid. 
D) None of the above is false.

Question 17

Welch Inc. has used a fiscal ending September 30 as its taxable year since its incorporation in 1988. The shareholders have decided to shut down Welch's business and dissolve the corporation on March 31. Which of the following statements is false?

Accepted Answer

A) Welch's final tax return will be a short-period return. 
B) Welch's final tax return will include its income from October 1 to March 31. 
C) Welch must annualize its taxable income on its final tax return. 
D) None of the above is false. 
A) Welch's final tax return will be a short-period return. 
B) Welch's final tax return will include its income from October 1 to March 31. 
C) Welch must annualize its taxable income on its final tax return. 
D) None of the above is false.

Question 18

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

Accepted Answer

A) Bad debt expense per books is $845,000, and the deduction for bad debts is $899,600. 
B) Bad debt expense per books is $899,600, and the deduction for bad debts is $845,000. 
C) Bad debt expense per books and the deduction for bad debts is $899,600. 
D) Bad debt expense per books and the deduction for bad debts is $895,400. 
A) Bad debt expense per books is $845,000, and the deduction for bad debts is $899,600. 
B) Bad debt expense per books is $899,600, and the deduction for bad debts is $845,000. 
C) Bad debt expense per books and the deduction for bad debts is $899,600. 
D) Bad debt expense per books and the deduction for bad debts is $895,400.

Question 19

Mundo Company is a calendar year, accrual basis taxpayer. In June 2013, Mundo received a $72,000 cash payment from a tenant who leases space in a commercial office building that Mundo owns. The payment was rent for the 24-month period beginning on July 1, 2013. As a result of the payment, Mundo should report:

Accepted Answer

A) $6,000 book income and taxable income 
B) $72,000 book income and taxable income 
C) No book income and $72,000 taxable income 
D) None of the above 
A) $6,000 book income and taxable income 
B) $72,000 book income and taxable income 
C) No book income and $72,000 taxable income 
D) None of the above

Question 20

Pim Inc. operates a business with a natural annual operating cycle ending August 31. Which of the following can Pim adopt as its taxable year?

Accepted Answer

A) A calendar year. 
B) Fiscal year ending June 30. 
C) Fiscal year ending August 31. 
D) Pim can adopt a calendar year or any fiscal year as its taxable year. 
A) A calendar year. 
B) Fiscal year ending June 30. 
C) Fiscal year ending August 31. 
D) Pim can adopt a calendar year or any fiscal year as its taxable year.

A firm's choice of taxable year is usually dictated by the annual operating cycle of the firm's business.

A taxpayer that operates more than one business may use a different method of accounting for each business.

Monro Inc. uses the accrual method of accounting. Here is a reconciliation of Monro's allowance for bad debts for the current year. Because of the difference between the GAAP and the tax rules for accounting for bad debts, Monro Inc. has an:

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

PPQ Inc. wants to change from a hybrid method of accounting to the accrual method of accounting for tax purposes. PPQ can't make this change without receiving permission from the IRS.

Keagan Company, a calendar year taxpayer, incurred $1,490 of long-distance telephone charges in December 2013 and mailed a check to the telephone company on January 4, 2014. If Poole is an accrual basis taxpayer, it reports a $1,490 tax deduction in 2014.

A cash basis taxpayer must account for any prepayment of interest expense under the accrual method.

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

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

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

Addis Company operates a retail men's clothing store. Because Addis has merchandise inventory, it must use:

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

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

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

Welch Inc. has used a fiscal ending September 30 as its taxable year since its incorporation in 1988. The shareholders have decided to shut down Welch's business and dissolve the corporation on March 31. Which of the following statements is false?

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

Pim Inc. operates a business with a natural annual operating cycle ending August 31. Which of the following can Pim adopt as its taxable year?

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 a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Filters

Exam 6: Taxable Income From Business Operations

A firm's choice of taxable year is usually dictated by the annual operating cycle of the firm's business.

A taxpayer that operates more than one business may use a different method of accounting for each business.

Monro Inc. uses the accrual method of accounting. Here is a reconciliation of Monro's allowance for bad debts for the current year. Because of the difference between the GAAP and the tax rules for accounting for bad debts, Monro Inc. has an:

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

PPQ Inc. wants to change from a hybrid method of accounting to the accrual method of accounting for tax purposes. PPQ can't make this change without receiving permission from the IRS.

Keagan Company, a calendar year taxpayer, incurred $1,490 of long-distance telephone charges in December 2013 and mailed a check to the telephone company on January 4, 2014. If Poole is an accrual basis taxpayer, it reports a $1,490 tax deduction in 2014.

A cash basis taxpayer must account for any prepayment of interest expense under the accrual method.

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

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

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

Addis Company operates a retail men's clothing store. Because Addis has merchandise inventory, it must use:

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

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

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

Welch Inc. has used a fiscal ending September 30 as its taxable year since its incorporation in 1988. The shareholders have decided to shut down Welch's business and dissolve the corporation on March 31. Which of the following statements is false?

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

Pim Inc. operates a business with a natural annual operating cycle ending August 31. Which of the following can Pim adopt as its taxable year?

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 a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Filters