Exam 6: Taxable Income From Business Operations

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

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

Which of the following businesses is prohibited from using the cash receipts and disbursement method of accounting for tax purposes?

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.

Which of the following statements describes a permanent book/tax difference?

Mr. Stern, a cash basis taxpayer, was notified by his bank that he earned $1,193 of interest on his savings account in 2015. Mr. Stern has not withdrawn any funds from this account for eight years and did not receive the notification until January 26, 2016. Mr. Stern does not recognize the interest as income in 2015.

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

Zephex is a calendar year corporation. On December 1, 2015, 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, 2015, through March 31, 2016. On December 2, 2015, Zephex billed a client $38,250 for services rendered to the client in November. The client did not pay the bill until January 14, 2016. a. If Zephex is a cash basis taxpayer, how much 2015 income should it recognize with respect to the above transactions? b. If Zephex is an accrual basis taxpayer, how much 2015 book income should it report and how much 2015 taxable income should it recognize with respect to the above transactions?

Tabco Inc., a calendar year, accrual basis corporation, accrued $48,800 wage and salary expense and a corresponding liability at the end of 2015. How much of the accrued expense is deductible in 2015?

At the end of its taxable year, Gong Company accrued an expense for an account payable to Mexance Inc. Even if Gong and Mexance are related parties, Gong can deduct the accrued expense if Mexance also uses the accrual method of accounting for tax purposes.

Keagan Company, a calendar year taxpayer, incurred $1,490 of long-distance telephone charges in December 2015 and mailed a check to the telephone company on January 4, 2016. If Poole is an accrual basis taxpayer, it reports a $1,490 tax deduction in 2016.

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

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?

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

According to your textbook, business managers prefer to:

Why does the federal tax law disallow a business deduction for a fine or penalty paid to any government?

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?

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?

Which of the following does not result in a permanent book/tax difference?

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.