Filters
Question type
Study Flashcards

Purple Corporation,a personal service corporation (PSC) ,adopted a fiscal year ending September 30th.The sole shareholder of the corporation is a calendar year taxpayer.During the fiscal year ending September 30,2012,the shareholder-employee received $120,000 salary.The corporation paid the shareholder-employee a salary of $15,000 during the period beginning October 1,2012 through December 31,2012.


A) The corporation salary expense for the fiscal year ending September 30, 2013 is limited to $120,000.
B) The corporation salary expense for the fiscal year ending September 30, 2013 is limited to $135,000.
C) The corporation salary expense for the fiscal year ending September 30, 2013 is limited to $60,000.
D) The corporation must switch to a calendar year.
E) None of the above.

F) B) and E)
G) A) and B)

Correct Answer

verifed

verified

Abby sold her unincorporated business which consisted of equipment and goodwill.The equipment had an original cost of $200,000 and Abby had claimed $120,000 in depreciation (adjusted basis = $80,000) .Abby had no basis in the goodwill.The sales price for the business was $250,000,with $150,000 for the equipment and $100,000 for the goodwill.The buyer agreed to pay $120,000 on June 30,2012,and $130,000 (plus interest at the Federal rate) in two years.Abby's gain to be reported in 2012 (exclusive of interest) is:


A) $40,000.
B) $51,000.
C) $102,000.
D) $118,000.
E) $170,000.

F) A) and B)
G) All of the above

Correct Answer

verifed

verified

Brown Corporation had consistently reported its income by the cash method.The corporation should have used the accrual method because inventories are material to the business.In 2012,Brown timely filed a request to change to the accrual method.At the beginning of 2012,Brown had accounts receivable of $90,000.Also,Brown had merchandise on hand with a cost of $120,000 and accounts payable for merchandise of $37,500.The accounts receivable,inventory,and accounts payable balance per books were zero.Determine the adjustment to income due to the change in accounting method and the amount that is allocated to 2012. Adjustment due to the change: Brown Corporation had consistently reported its income by the cash method.The corporation should have used the accrual method because inventories are material to the business.In 2012,Brown timely filed a request to change to the accrual method.At the beginning of 2012,Brown had accounts receivable of $90,000.Also,Brown had merchandise on hand with a cost of $120,000 and accounts payable for merchandise of $37,500.The accounts receivable,inventory,and accounts payable balance per books were zero.Determine the adjustment to income due to the change in accounting method and the amount that is allocated to 2012. Adjustment due to the change: The change is from a clearly incorrect method to a correct method.Therefore,the positive adjustment must be spread over four years.The company must add $43,125 ($172,500 divided by 4)to 2012 income. The change is from a clearly incorrect method to a correct method.Therefore,the positive adjustment must be spread over four years.The company must add $43,125 ($172,500 divided by 4)to 2012 income.

Correct Answer

verifed

verified

102.John sold an apartment building for ...

View Answer

Color,Inc.,is an accrual basis taxpayer.In December 2013,the company received from a customer a $500 claim for defective merchandise.Color paid the customer in January 2014.Also,in December 2013,the company received a bill of $800 for office supplies that had been purchased and used in November 2013.The bill was not paid until January 2014.In January 2014,the company received a claim for $600 for defective merchandise purchased in 2013.Color paid the customer the $600 in February 2014.Assuming Color uses the recurring item exception to economic performance,the company's deductions for 2013 as a result of the above are:


A) $500.
B) $600.
C) $800.
D) $1,300.
E) $1,900.

F) C) and D)
G) A) and B)

Correct Answer

verifed

verified

In the case of an accrual basis taxpayer,an item of income:


A) Is not recognized until cash is received.
B) From services is never recognized until the services are performed.
C) Is not recognized if the customer can return the goods.
D) Is recognized when all the events have occurred to fix the taxpayer's right to receive the income and the amount of the income can be determined with reasonable accuracy.
E) None of the above.

F) B) and D)
G) A) and B)

Correct Answer

verifed

verified

The taxpayer has consistently,but incorrectly,used an allowance for bad debts.At the beginning of the year,the balance in the allowance account is $90,000.


A) If the IRS examines the taxpayer's return and requires the taxpayer to change accounting methods, the taxpayer will be required to recognize an additional $90,000 of income (one-half in the current year and one-half in the following year) as the adjustment due to the change in accounting methods.
B) If the taxpayer voluntarily changes methods, the $90,000 adjustment can be spread over the current and three following years.
C) If the taxpayer voluntarily changes methods, the $90,000 reserve can be used to absorb bad debts until the account balance is zero.
D) If the IRS examines the taxpayer's return, no adjustment to the reserve account will be required if the balance is consistent with prior bad debt experience.
E) None of the above.

F) B) and D)
G) A) and C)

Correct Answer

verifed

verified

Karen,an accrual basis taxpayer,sold goods in December 2012 for $20,000.The customer was unable to pay cash.So the customer gave Karen a note for $20,000 that was payable in April 2013.The note bore interest at the Federal rate.The fair market value of the note at the end of 2012 was $18,000.Karen collected $20,500 from the customer in April 2013,$20,000 principal plus $500 interest.Under the accrual method,Karen must recognize income of:


A) $20,500 in 2013.
B) $18,000 in 2012 and $2,500 in 2013.
C) $20,000 in 2012 and $500 in 2013.
D) $20,500 in 2013
E) None of the above.

F) All of the above
G) B) and C)

Correct Answer

verifed

verified

Wendy sold property on the installment basis in 2011 for more than her basis in the property.Wendy was to receive installment payments at the end of each year for the next five years.In 2012,before she collected on the installment obligation for that year,Wendy gave to her daughter (Wilma) the installment obligation so that she could collect the four remaining installments.


A) Wilma must recognize the gain from all the amounts collected on the installment obligation in 2012 and subsequent years.
B) Wendy must recognize the gain each year when Wilma collects on the installment obligation.
C) Wilma must recognize the remaining installment sale gain in 2012.
D) Wendy must recognize the remaining installment sale gain in 2012 and Wilma will not recognize gain from collecting on the installment obligation.
E) None of the above.

F) A) and E)
G) B) and E)

Correct Answer

verifed

verified

When the IRS requires a taxpayer to change accounting methods:


A) The taxpayer may be subject to penalties and interest.
B) The taxpayer generally is required to make the change as of the beginning of the earliest open year.
C) The adjustments due to the change cannot be spread over subsequent years.
D) Only a. and b. are correct.
E) a., b., and c. are correct.

F) D) and E)
G) A) and E)

Correct Answer

verifed

verified

Terry,Inc.,makes gasoline storage tanks.All production is done under contract.The company makes three basic models,but each model must be adapted to customer specifications for the location of outlets,insulation,and paint.It takes from three to six months to complete a tank.How should Terry account for the income for the business?

Correct Answer

verifed

verified

Terry,Inc.could have the percentage of c...

View Answer

Aspen stores is a large retail chain.The company has four warehouses that are located in various parts of the country.The goods are stored at the warehouses and then moved to the retail stores for sale.


A) The costs of operating the warehouses can be deducted in the year the costs are incurred because it is a loss incurred from not selling goods.
B) The costs of operating the warehouses can be deducted in the year the costs are incurred because they did not add to the value of the goods.
C) The costs of operating the warehouses can be capitalized or expensed by electing one method or the other.
D) The warehouses are on-sight storage facilities and, therefore, their costs must be added to the cost of goods on hand.
E) None of the above.

F) A) and E)
G) A) and B)

Correct Answer

verifed

verified

A C corporation provides lawn maintenance services to various businesses and homeowners.The corporation has average annual gross receipts of $3,500,000.The corporation may use the cash method of accounting.

A) True
B) False

Correct Answer

verifed

verified

The LIFO method is beneficial only when prices are rising and the taxpayer is increasing the quantities of inventory items on hand.

A) True
B) False

Correct Answer

verifed

verified

In 2012,George used the FIFO lower of cost or market inventory method.As of December 31,2011,the inventory cost was $50,000 and its market price was $40,000.At the time of filing his 2012 income tax return,George changed to the LIFO method.The ending inventory at cost on December 31,2012,was $75,000 and the market price of the goods totaled $35,000.Which of the following statements is correct?


A) The beginning inventory for 2012 is $50,000, and George must spread a $10,000 adjustment ($50,000 - $40,000) evenly over 2012, 2013, and 2014.
B) The beginning inventory for 2012 is $40,000.
C) The beginning inventory for 2012 is $50,000, and George must spread a $10,000 adjustment over the three previous years.
D) The change is invalid since the taxpayer did not apply for the change by the end of the tax year of change.
E) None of the above.

F) A) and B)
G) A) and C)

Correct Answer

verifed

verified

Kathy was a shareholder in Matrix,Inc.,when she sold the corporation a commercial building.The building cost $500,000 and the balance in the accumulated depreciation account was $400,000.Matrix,Inc.,paid $100,000 in the year of sale and gave Kathy a note for $400,000 plus adequate interest due in 2014.


A) Because Kathy is a shareholder in Matrix, she cannot report the gain by the installment method.
B) Generally, if Kathy owned 100% of the Matrix stock, Kathy cannot use the installment method.
C) Generally, if Kathy owned only 60% rather than 100% of the Matrix stock, she could use the installment method.
D) Kathy cannot use the installment method to report the gain because the realized gain is equal to the depreciation she claimed on the building.
E) None of the above.

F) B) and C)
G) A) and E)

Correct Answer

verifed

verified

In 2004,a medical doctor who incorporated his practice elected a fiscal year ending September 30th.During the fiscal year ended September 30,2012,he received a salary of $180,000.During the period from October 1,2012 to December 31,2012,the corporation paid the doctor a total salary of $50,000,and paid him $200,000 of salary in the following 9 months.The corporation's salary deduction for the fiscal year ending September 30,2013,is limited to $200,000.

A) True
B) False

Correct Answer

verifed

verified

In the case of a change from the lower-of-cost-or-market FIFO to the LIFO inventory method:


A) The taxpayer may make the change when the tax return is filed without seeking the IRS's permission for the change.
B) The taxpayer must revalue the beginning inventory from lower-of-cost-or-market to actual FIFO cost.
C) The adjustment due to the change in accounting method must be spread over 3 years, the year of change and the two subsequent years.
D) All of the above.
E) None of the above.

F) None of the above
G) C) and D)

Correct Answer

verifed

verified

If an installment sale contract does not charge interest on the sale of a capital asset,the IRS will impute interest and thereby increase the taxpayer's capital gain and interest income.

A) True
B) False

Correct Answer

verifed

verified

In determining the cost of goods manufactured and thus the cost of the ending inventory:


A) A production supervisor's salary must be treated as a period cost (not added to production costs and inventory) because the salary is paid regardless of the amount produced.
B) The personnel department participates in hiring production workers, and therefore a portion of its costs must be allocated to production.
C) Property taxes on the factory building are treated as period costs because the same taxes are due regardless of the volume of production.
D) Only the costs of direct materials and direct labor must be capitalized.
E) None of the above is correct.

F) All of the above
G) D) and E)

Correct Answer

verifed

verified

Todd,a CPA,sold land for $300,000 cash on the date of sale plus a note for $500,000 due in one year.The interest rate on the note was equal to the Federal rate.The fair market value of the note was $400,000.Todd's basis in the land was $80,000.


A) If Todd uses the cash basis to report the income from his practice, he cannot use the installment method to report the gain on the sale of the land.
B) If Todd uses the accrual basis to report the income from his practice, he cannot use the installment method to report the gain from the sale of the land.
C) If Todd uses the installment method to report the gain, the contract price is $800,000.
D) If Todd does not use the installment method, his gain in the year of sale is $620,000 ($700,000 - $80,000) .
E) None of the above.

F) None of the above
G) A) and C)

Correct Answer

verifed

verified

Showing 21 - 40 of 107

Related Exams

Exam 1

An Introduction to Taxation and Understanding the Federal Tax Law

155 Questions

Exam 2

Working With the Tax Law

83 Questions

Exam 3

Tax Formula and Tax Determination; an Overview of Property Transactions

153 Questions

Exam 4

Gross Income: Concepts and Inclusions

125 Questions

Exam 5

Gross Income: Exclusions

115 Questions

Exam 6

Deductions and Losses: in General

154 Questions

Exam 7

Deductions and Losses: Certain Business Expenses and Losses

115 Questions

Exam 8

Depreciation, cost Recovery, amortization, and Depletion

116 Questions

Exam 9

Deductions: Employee and Self-Employed-Related Expenses

140 Questions

Exam 10

Deductions and Losses: Certain Itemized Deductions

106 Questions

Exam 11

Investor Losses

105 Questions

Exam 12

Alternative Minimum Tax

125 Questions

Exam 13

Tax Credits and Payment Procedures

123 Questions

Exam 14

Property Transactions: Determination of Gain or Loss and Basis Considerations

154 Questions

Exam 15

Property Transactions: Nontaxable Exchanges

139 Questions

Exam 16

Property Transactions: Capital Gains and Losses

76 Questions

Exam 17

Property Transactions: Section 1231 and Recapture Provisions

74 Questions

Exam 19

Deferred Compensation

104 Questions

Exam 20

Corporations and Partnerships

165 Questions

Show Answer