Exam 6: Taxable Income From Business Operations

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

RRK, a calendar year, accrual basis taxpayer, is involved in a legal dispute over an alleged trademark violation. At the end of the year, RRK's accountant recorded a $750,000 accrued expense for the estimated settlement cost of the dispute. Which of the following statements is true?

If an accrual basis taxpayer prepays interest expense, the payment results in an unfavorable temporary book/tax difference.

Which of the following business expenses always results in a difference between taxable income and book income?

For tax purposes, income is recognized when all events have occurred that fix the taxpayer's right to receive the income and the amount of income can be determined with reasonable accuracy.

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

Laine Services, a calendar year taxpayer, billed a client for $8,450 of services on November 30, 2015, and received a check in full payment from the client on January 12, 2016. If Poole is an accrual basis taxpayer, it reports $8,450 taxable income in 2015.

Mundo Company is a calendar year, accrual basis taxpayer. In June 2015, 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, 2015. As a result of the payment, Mundo should report:

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

A corporation can't have an increase in deferred tax assets and an increase in deferred tax liabilities in the same year.

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

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

Mr. John Carre owns 67% of the stock of JC Inc. and is employed as the corporation's CEO. The corporation is a calendar year, accrual basis taxpayer. On December 14, 2015, the board of directors authorized a $45,000 year-end bonus for Mr. Carre, which was paid to him on February 1, 2016. In which year can JC Inc. deduct the bonus?

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

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

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

A temporary difference between book income and taxable income results when an item of income reflected on the books is never included in taxable income.

Which of the following statements about methods of accounting is false?

Why does the federal tax law disallow a business deduction for political contributions?

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.