Question 1

Tabco Inc.,a calendar year,accrual basis corporation,accrued $48,800 wage and salary expense and a corresponding liability at the end of 2019.How much of the accrued expense is deductible in 2019?

Accepted Answer

A) None of the accrued expense is deductible in 2019. 
B) The entire accrued expense is deductible in 2019. 
C) The amount of the accrued expense paid by September 15,2020,is deductible in 2019. 
D) The amount of the accrued expense paid by March 15,2020,is deductible in 2019.

Question 2

Eddy Corporation engaged in a transaction that generated $100,000 book income but only $81,000 taxable income.Which of the following is true?

Accepted Answer

A) If the $19,000 excess of book income over taxable income is temporary,the transaction has no effect on Eddy's deferred tax accounts. 
B) The $19,000 excess of book income over taxable income is an unfavorable difference. 
C) If the $19,000 excess of book income over taxable income is permanent,the transaction has no effect on Eddy's deferred tax accounts. 
D) None of the above is true.

Question 3

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.

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) Business meal and entertainment expense 
B) Domestic production activities deduction 
C) Premiums paid on key-person life insurance policies 
D) All of the above result in a permanent book/tax difference.

Question 6

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?

Accepted Answer

A) Because it has a good business reason,Tonto can change to a fiscal year ending May 31 without IRS permission. 
B) If Tonto changes to a fiscal year ending May 31,it must file a short-period return for the seven-month period from June 1 to December 31 of the year of change. 
C) If Tonto changes to a fiscal year ending May 31,it must file a short-period return for the five-month period from January 1 to May 31 of the year of change. 
D) Because it has a good business reason,Tonto can change to a fiscal year ending May 31 without IRS permission and if Tonto changes to a fiscal year ending May 31,it must file a short-period return for the seven-month period from June 1 to December 31 of the year of change.

Question 7

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

Accepted Answer

A) A cash basis taxpayer who is in constructive receipt of an income item must recognize that income,even if the item is not in the taxpayer's actual possession. 
B) A cash basis taxpayer can deduct the purchase cost of business equipment. 
C) A cash basis taxpayer does not recognize gross income on receipt of an economic benefit unless that benefit consists of money. 
D) A cash basis taxpayer can deduct interest when it is paid,regardless of the time period for which the interest is charged.

Question 8

Zephex is a calendar year corporation.On December 1,2019,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 1,2019,through March 31,2020.On December 2,2019,Zephex billed a client $38,250 for services rendered to the client in November.The client did not pay the bill until January 14,2020.
a.If Zephex is a cash basis taxpayer,how much 2019 income should it recognize with respect to the above transactions?
b.If Zephex is an accrual basis taxpayer,how much 2019 book income should it report and how much 2019 taxable income should it recognize with respect to the above transactions?

Accepted Answer

The answer of Zephex is a calendar year corporation.On December...

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

Southlawn Inc.'s taxable income is computed as follows:  Using a 21% rate,compute Southlawn's tax expense per books and tax payable.

Accepted Answer

A) Tax expense per books $397,656; tax payable $357,966. 
B) Tax expense per books $357966; tax payable $397,656. 
C) Tax expense per books $612,570; tax payable $357,966. 
D) None of the above

Question 11

When an individual taxpayer begins a new business as a sole proprietorship and wants to keep records on a fiscal year basis,permission to change taxable years is not required because this is a new business.

Accepted Answer

A) True 
 B)False

Question 12

For federal tax purposes,gross income from the sale of tangible goods is reduced by the seller's cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 13

Laine Services,a calendar year taxpayer,billed a client for $8,450 of services on November 30,2019,and received a check in full payment from the client on January 12,2020.If Poole is an accrual basis taxpayer,it reports $8,450 taxable income in 2019.

Accepted Answer

A) True 
 B)False

Question 14

Taxpayers may adopt the cash receipts and disbursements method,the accrual method,or a hybrid method of accounting for tax purposes.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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

Accepted Answer

A) The doctrine applies to cash basis taxpayers. 
B) The doctrine relates to the time period variable in tax planning. 
C) Application of the doctrine by the IRS is subjective and depends on the facts and circumstances of each case. 
D) None of the above is false.

Question 18

Tax expense per books is based on:

Accepted Answer

A) Before-tax book income 
B) Before-tax book income adjusted for permanent differences 
C) Before-tax book income adjusted for temporary differences 
D) Before-tax book income adjusted for both permanent and temporary differences

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

Stack Inc.owns a $1 million insurance policy on the life of Mary Stack,the corporate CEO.The corporation is the policy beneficiary.Stack's annual premium on the policy is $3,160.Which of the following statements is true?

Accepted Answer

A) Stack Inc.can deduct the annual premium as a business expense.If Stack ever collects the $1 million death benefit,the benefit is excluded from gross income. 
B) Stack Inc.can deduct the annual premium as a business expense.If Stack ever collects the $1 million death benefit,the benefit is included in gross income. 
C) Stack Inc.can't deduct the annual premium as a business expense.If Stack ever collects the $1 million death benefit,the benefit is included in gross income. 
D) Stack Inc.can't deduct the annual premium as a business expense.If Stack ever collects the $1 million death benefit,the benefit is excluded from gross income.

Exam 6: Taxable Income From Business Operations

Tabco Inc.,a calendar year,accrual basis corporation,accrued $48,800 wage and salary expense and a corresponding liability at the end of 2019.How much of the accrued expense is deductible in 2019?

Eddy Corporation engaged in a transaction that generated $100,000 book income but only $81,000 taxable income.Which of the following 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?

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.

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

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?

Which of the following statements concerning the cash method of accounting 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.

Southlawn Inc.'s taxable income is computed as follows: Using a 21% rate,compute Southlawn's tax expense per books and tax payable.

When an individual taxpayer begins a new business as a sole proprietorship and wants to keep records on a fiscal year basis,permission to change taxable years is not required because this is a new business.

For federal tax purposes,gross income from the sale of tangible goods is reduced by the seller's cost of goods sold.

Laine Services,a calendar year taxpayer,billed a client for $8,450 of services on November 30,2019,and received a check in full payment from the client on January 12,2020.If Poole is an accrual basis taxpayer,it reports $8,450 taxable income in 2019.

Taxpayers may adopt the cash receipts and disbursements method,the accrual method,or a hybrid method of accounting for tax purposes.

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

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

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

Tax expense per books is based on:

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.

Stack Inc.owns a $1 million insurance policy on the life of Mary Stack,the corporate CEO.The corporation is the policy beneficiary.Stack's annual premium on the policy is $3,160.Which of the following statements is true?