Question 1

What is the significance of the Thor Power Tool Co.case?

Accepted Answer

In Thor Power Tool Co.,the company wrote off the cost of obsolete parts even though these parts were kept on hand and their asking price was not reduced.While this practice adhered to generally accepted accounting principles,the Supreme Court ruled that the practice did not clearly reflect income.Thus,in cases where the best accounting practice conflicts with the clear reflection of income,the standard of clear reflection of income will prevail.Where Regulations do not specify the treatment of an item or when the Regulations provide more than one alternative accounting method,generally accepted accounting principles may be used.

Question 2

A taxpayer's tax year must coincide with the year used to keep the taxpayer's books and records.

Accepted Answer

A) True 
 B)False  True

Question 3

Natalie sold a machine for $140,000.The machine originally cost $95,000 and $15,000 of MACRS depreciation had been allowable.The buyer assumed an existing loan of $40,000,paid $30,000 cash down and agreed to pay $10,000 per year for seven years plus interest.Selling expenses are $10,000.What is the amount of gain to be reported in the year of sale?

Accepted Answer

The selling price is $140,000.The gross profit from the sale is $35,000 ($140,000 - $80,000 adjusted basis - $10,000 selling expenses - $15,000 of depreciation recapture).The contract price is $140,000 - $40,000 loan = $100,000.The gross profit percentage is $35,000/$100,000 = 35%.The gain reported in the year of sale is:

Question 4

Emily made the following interest free loans to her children:
(1) $10,000 to Erin for a down payment on a new home.Her net investment income for the year is $1,300.
(2) $50,000 to Sasha to purchase stock.Her net investment income for the year is $800.
(3) $60,000 to Tim to purchase a new boat.His net investment income for the year is $2,800.
The applicable federal interest rate on similar loans is 5%.What is the amount of interest income that Emily must report from these transactions?

Accepted Answer

The total interest income is $2,800:
(1)

Question 5

A new business is established.It is not a seasonal business.All of the following are acceptable accounting tax years with the exception of

Accepted Answer

A)  an S corporation year ending October 31. 
B)  a C corporation (not a personal service corporation) tax year ending on February 15. 
C)  a C corporation (not a personal service corporation) tax year ending on April 30. 
D)  a partnership tax year ending on October 31 with three equal partners whose tax years end on September 30, October 31, and November 30. 
A)  an S corporation year ending October 31. 
B)  a C corporation (not a personal service corporation) tax year ending on February 15. 
C)  a C corporation (not a personal service corporation) tax year ending on April 30. 
D)  a partnership tax year ending on October 31 with three equal partners whose tax years end on September 30, October 31, and November 30.

Question 6

Lloyd Corporation,a calendar-year,accrual-basis taxpayer,pays its insurance premium each year on June 1,the anniversary of the policy.The premium paid this year is $9,600 while last year's was $9,000.How much is Lloyd's deduction for insurance this year?

Accepted Answer

Strict application of accrual-basis acco

Question 7

An installment sale is best defined as

Accepted Answer

A)  any disposition of property in which at least three payments are received. 
B)  any disposition of property in which the installment method is elected by the taxpayer. 
C)  any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs. 
D)  any disposition of publicly traded securities or inventory where at least one payment is received after the close of the taxable year in which disposition occurs. 
A)  any disposition of property in which at least three payments are received. 
B)  any disposition of property in which the installment method is elected by the taxpayer. 
C)  any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs. 
D)  any disposition of publicly traded securities or inventory where at least one payment is received after the close of the taxable year in which disposition occurs.

Question 8

All of the following transactions are exempt from rules regarding imputed interest with the exception of

Accepted Answer

A)  taxpayer purchases newly issued bond for $700 (face value of $1,000). 
B)  taxpayer sells land for $135,000 with payment due in 5 years and no stated interest. 
C)  taxpayer sells his home gym equipment for $2,800 with payment due in one year and no stated interest. 
D)  taxpayer purchases a sailboat costing $2,500 for weekend boating trips; the full price payable in five months and no stated interest. 
A)  taxpayer purchases newly issued bond for $700 (face value of $1,000). 
B)  taxpayer sells land for $135,000 with payment due in 5 years and no stated interest. 
C)  taxpayer sells his home gym equipment for $2,800 with payment due in one year and no stated interest. 
D)  taxpayer purchases a sailboat costing $2,500 for weekend boating trips; the full price payable in five months and no stated interest.

Question 9

Which of the following businesses is most likely to benefit from an election to account for its inventory under LIFO?

Accepted Answer

A)  A company producing the newest version of a tablet with ultra-long battery life. It believes it has a one-year lead over the competition. 
B)  A company producing products with copper as a key component - copper prices fluctuate widely. 
C)  A company producing parts for the auto industry - costs in this field tend to steadily climb. 
D)  None of the above. 
A)  A company producing the newest version of a tablet with ultra-long battery life. It believes it has a one-year lead over the competition. 
B)  A company producing products with copper as a key component - copper prices fluctuate widely. 
C)  A company producing parts for the auto industry - costs in this field tend to steadily climb. 
D)  None of the above.

Question 10

Rondo Construction,a calendar-year taxpayer,starts a new long-term construction project in December that is expected to last about 18 months.The project is a mall.Because of some contingencies,it is difficult to estimate total costs this early in the project.Rondo can elect to defer income recognition under the modified percentage of completion method if costs completed by year-end are less than

Accepted Answer

A)  50% of the total estimated cost. 
B)  20% of the total estimated cost. 
C)  5% of the total estimated cost. 
D)  10% of the total estimated cost. 
A)  50% of the total estimated cost. 
B)  20% of the total estimated cost. 
C)  5% of the total estimated cost. 
D)  10% of the total estimated cost.

Question 11

Tonya sold publicly traded stock with an adjusted basis of $76,000 for $90,000.Tonya received a down payment of $15,000 with the balance due in equal payments over the next four years.What is the amount of gross profit to be recognized in the year of sale?

Accepted Answer

The installment method does no

Question 12

A newly married person may change tax years to conform to that of his or her spouse so that a joint return may be filed.

Accepted Answer

A) True 
 B)False

Question 13

Xerxes Manufacturing,in its first year of operations,produces solar panels which are sold through large building supply and home improvement stores.Xerxes' year-end results include the following:
   
You are preparing Xerxes' first year tax return.Xerxes has elected a calendar year as its tax accounting period and the accrual method.What additional information would you need to prepare the tax return?

Accepted Answer

You need to allocate production costs be

Question 14

Freida is an accrual-basis taxpayer who owns a furniture store.The furniture store had the following sales of inventory:
 
For tax purposes,Freida should report gross profit for 2017 of

Accepted Answer

A)  $40,000. 
B)  $65,000. 
C)  $90,000. 
D)  $125,000. 
A)  $40,000. 
B)  $65,000. 
C)  $90,000. 
D)  $125,000.

Question 15

For income tax purposes,a taxpayer must use the same accounting method,either percentage of completion or completed contract method,for all long-term contracts in the same trade or business.

Accepted Answer

A) True 
 B)False

Question 16

One criterion which will permit a deduction for an expenditure by the accrual-basis taxpayer prior to economic performance is that either the amount is not material or the earlier accrual of the item results in a better matching of income and expense.

Accepted Answer

A) True 
 B)False

Question 17

For tax purposes,the lower of cost or market method must ordinarily be applied to each separate inventory item.

Accepted Answer

A) True 
 B)False

Question 18

Andrew sold land to Becca,Andrew's daughter.The fair market value of the land was $300,000 (basis $250,000).Becca agreed to pay Andrew $300,000 over 8 years.Becca immediately sold the land to Olga for $300,000 cash.The gain of $50,000 must be recognized

Accepted Answer

A)  by Becca in installments. 
B)  by Becca when Becca sells to Olga. 
C)  by Andrew when Andrew sells to Becca. 
D)  by Andrew when Becca sells to Olga. 
A)  by Becca in installments. 
B)  by Becca when Becca sells to Olga. 
C)  by Andrew when Andrew sells to Becca. 
D)  by Andrew when Becca sells to Olga.

Question 19

If the majority of the partners do not have the same tax year,the partnership must use the tax year of its principal partners.

Accepted Answer

A) True 
 B)False

Question 20

In general,a change in accounting method must be approved by the IRS.

Accepted Answer

A) True 
 B)False

What is the significance of the Thor Power Tool Co.case?

A taxpayer's tax year must coincide with the year used to keep the taxpayer's books and records.

A new business is established.It is not a seasonal business.All of the following are acceptable accounting tax years with the exception of

Lloyd Corporation,a calendar-year,accrual-basis taxpayer,pays its insurance premium each year on June 1,the anniversary of the policy.The premium paid this year is $9,600 while last year's was $9,000.How much is Lloyd's deduction for insurance this year?

An installment sale is best defined as

All of the following transactions are exempt from rules regarding imputed interest with the exception of

Which of the following businesses is most likely to benefit from an election to account for its inventory under LIFO?

Tonya sold publicly traded stock with an adjusted basis of $76,000 for $90,000.Tonya received a down payment of $15,000 with the balance due in equal payments over the next four years.What is the amount of gross profit to be recognized in the year of sale?

A newly married person may change tax years to conform to that of his or her spouse so that a joint return may be filed.

Freida is an accrual-basis taxpayer who owns a furniture store.The furniture store had the following sales of inventory: For tax purposes,Freida should report gross profit for 2017 of

For income tax purposes,a taxpayer must use the same accounting method,either percentage of completion or completed contract method,for all long-term contracts in the same trade or business.

One criterion which will permit a deduction for an expenditure by the accrual-basis taxpayer prior to economic performance is that either the amount is not material or the earlier accrual of the item results in a better matching of income and expense.

For tax purposes,the lower of cost or market method must ordinarily be applied to each separate inventory item.

Andrew sold land to Becca,Andrew's daughter.The fair market value of the land was $300,000 (basis $250,000).Becca agreed to pay Andrew $300,000 over 8 years.Becca immediately sold the land to Olga for $300,000 cash.The gain of $50,000 must be recognized

If the majority of the partners do not have the same tax year,the partnership must use the tax year of its principal partners.

In general,a change in accounting method must be approved by the IRS.

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Depreciation, cost Recovery, amortization, and Depletion

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods, tax Credits, and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters

Exam 11: Accounting Periods and Methods

What is the significance of the Thor Power Tool Co.case?

A taxpayer's tax year must coincide with the year used to keep the taxpayer's books and records.

A new business is established.It is not a seasonal business.All of the following are acceptable accounting tax years with the exception of

Lloyd Corporation,a calendar-year,accrual-basis taxpayer,pays its insurance premium each year on June 1,the anniversary of the policy.The premium paid this year is $9,600 while last year's was $9,000.How much is Lloyd's deduction for insurance this year?

An installment sale is best defined as

All of the following transactions are exempt from rules regarding imputed interest with the exception of

Which of the following businesses is most likely to benefit from an election to account for its inventory under LIFO?

Tonya sold publicly traded stock with an adjusted basis of $76,000 for $90,000.Tonya received a down payment of $15,000 with the balance due in equal payments over the next four years.What is the amount of gross profit to be recognized in the year of sale?

A newly married person may change tax years to conform to that of his or her spouse so that a joint return may be filed.

Freida is an accrual-basis taxpayer who owns a furniture store.The furniture store had the following sales of inventory: For tax purposes,Freida should report gross profit for 2017 of

For income tax purposes,a taxpayer must use the same accounting method,either percentage of completion or completed contract method,for all long-term contracts in the same trade or business.

One criterion which will permit a deduction for an expenditure by the accrual-basis taxpayer prior to economic performance is that either the amount is not material or the earlier accrual of the item results in a better matching of income and expense.

For tax purposes,the lower of cost or market method must ordinarily be applied to each separate inventory item.

Andrew sold land to Becca,Andrew's daughter.The fair market value of the land was $300,000 (basis $250,000).Becca agreed to pay Andrew $300,000 over 8 years.Becca immediately sold the land to Olga for $300,000 cash.The gain of $50,000 must be recognized

If the majority of the partners do not have the same tax year,the partnership must use the tax year of its principal partners.

In general,a change in accounting method must be approved by the IRS.

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Depreciation, cost Recovery, amortization, and Depletion

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods, tax Credits, and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters