1. Which of the following items should be excluded from taxable income?
Rents received
Interest income
Dividend income
None of the above
Question 2. ABC Corporation, a cash-basis business, received $18,000 cash as payment on a loan it extended to XYZ furniture last year. The payment consisted of $16,000 principal payment and $2,000 interest. On receipt of the cash, ABC recognizes
$1,317 taxable income.
$20,000 taxable income.
$18,000 taxable income.
$2,000 taxable income.
Question 3. Which of the following statements about the constructive receipt doctrine is false?
The doctrine applies to cash-basis taxpayers.
The doctrine relates to the time period variable in tax planning.
Application of the doctrine by the IRS is subjective and depends on the facts and circumstances of each case.
The doctrine only applies to accrual-basis taxpayers.
Question 4. Marathon Inc.'s taxable income is computed as follows.
Book income before tax $2,405,600
Net permanent differences (512,000)
Net temporary differences (189,000)
Taxable income$1,704,600
Using a 33% rate, compute Marathon's tax expense per books and tax payable.
Tax expense per books $643,824; tax payable $579,564
Tax expense per books $579,564; tax payable $643,824
Tax expense per books $530,152; tax payable $477,288
Tax expense per books $624,888; tax payable $562,518
Question 5. Body Justice Inc., a calendar-year, accrual-basis corporation, accrued $138,200 vacation pay expense and a corresponding liability at the end of 2015. Derik paid $20,000 of the accrued liability to employees who took vacation between January 1 and March 15, 2016. How much of the accrued vacation pay expense is deductible in 2015?
None of the accrued expense is deductible in 2015.
$158,200
$20,000
The entire accrued expense is deductible in 2015.
Question 6. Uptown Inc. incurred a $76,412 net operating loss this year. Which of the following statements is true?
Uptown can only elect to use the NOL only as a carryforward deduction.
Uptown can only use the NOL only as a carryback deduction.
Uptown may carry forward the NOL 20 years.
None of the above
Question 7. Orlando Florist Company, an accrual-basis taxpayer, had a $11,000 overdue account payable to its supplier. The supplier agreed to settle the account for $8,000 cash from Orlando. Which of the following statements is true?
Orlando recognizes $3,000 income because of the settlement.
Orlando recognizes no income because of the settlement.
Orlando can deduct the $11,000 payment.
Orlando can deduct a $1,000 bad debt expense.
Question 8. Lolade Inc. operates a business with a natural annual operating cycle ending September 30. Which of the following can Lolade adopt as its taxable year?
A calendar year
Fiscal year ending June 30
Fiscal year ending August 31
A calendar year or any fiscal year
Question 9. Which of the following methods of accounting is never permissible for computing taxable income for companies that sell inventory?
Cash method
Accrual method
Hybrid method
All of the above
Question 10. Which of the following statements about methods of accounting is true?
The IRS has the right to determine whether a taxpayer's method of accounting clearly reflects the taxpayer's income.
A taxpayer must request permission from the IRS to change its method of accounting for tax purposes.
A taxpayer engaged in more than one business may use a different method of accounting for each business.
All of the above