Question 1

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Bigtown Advertising Agency, a calendar-year, accrual basis taxpayer, was paid $60,000 for a three-year advertising contract on July 1, 2017, and $36,000 for a 12-month contract on December 1, 2017 How much income must Bigtown recognize for these contracts in years 2017 and 2018, respectively?

Accepted Answer

For tax purposes, income is generally recognized when it is earned, not when it is received. The $60,000 received on July 1, 2017, is for a three-year contract and would be recognized as $20,000 of income for each year of the contract (2017, 2018, and 2019). The $36,000 received on December 1, 2017, is for a 12-month contract and would be recognized as $36,000 of income in 2018. Therefore, Bigtown would recognize $20,000 + $20,000 + $36,000 = $76,000 of taxable income in 2017 and $36,000 of taxable income in 2018.

Question 2

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-All of the following are allowable tax years except: A. The last Friday of July
B). December 31
C). The Sunday closest to March 1
D). August 31

Accepted Answer

The answer of Put T for Taxable income or N...

Question 3

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Carbon Corporation had a $2,000,000 contract to build a small hospital with total costs estimated at $1,600,000. It received the following payments and incurred the following expenses over the three-year contract period: Year Payments Expenses
1 $ 400,000 $300,000
2 $1,200,000 $900,000
3 $ 400,000 $550,000
Under the percentage-of-completion method, how much profit (loss) should Carbon recognize in year 3?

Accepted Answer

The answer of Put T for Taxable income or N...

Question 4

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Carbon Corporation had a $2,000,000 contract to build a small hospital with total costs estimated at $1,600,000. It received the following payments and incurred the following expenses over the three-year contract period: Year Payments Expenses
1 $ 400,000 $300,000
2 $1,200,000 $900,000
3 $ 400,000 $550,000
Under the competed contract method of accounting, how much profit (loss) should Carbon recognize in years 1, 2, and 3 respectively?

Accepted Answer

The answer of Put T for Taxable income or N...

Question 5

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Carbon Corporation had a $2,000,000 contract to build a small hospital with total costs estimated at $1,600,000. It received the following payments and incurred the following expenses over the three-year contract period: Year Payments Expenses
1 $ 400,000 $300,000
2 $1,200,000 $900,000
3 $ 400,000 $550,000
Under the percentage-of-completion method, how much profit should Carbon recognize in year 1?

Accepted Answer

The answer of Put T for Taxable income or N...

Question 6

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Which of the following is an application of the wherewithal-to-pay concept?

Accepted Answer

The installment method is an application of the wherewithal-to-pay concept, as it recognizes income when the cash payments are actually received, aligning income recognition with the taxpayer's ability to pay.

Question 7

Hannah has $20,000 invested in corporate bonds with a stated interest rate of 6 percent and $20,000 in tax-exempt municipal bonds issued for governmental activities with a stated interest rate of 5 percent. What is her annual after-tax cash flow from interest income for each investment if her marginal tax rate is 24%?

Accepted Answer

For the municipal bonds, the after-tax cash flow is calculated as: 
$20,000 x 0.05 x (1-0.24) = $1,000

For the corporate bonds, the after-tax cash flow is calculated as:
$20,000 x 0.06 x (1-0.24) = $912

Therefore, the answer is B.

Question 8

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Clayton Corporation receives $100,000 to provide garbage service for the next four years:

Accepted Answer

The answer of Put T for Taxable income or N...

Question 9

Kimberly gave 100 shares of stock to her 24-year-old son, Brandon. Kimberly purchased the stock 9 months ago for $10 per share. On the gift date, the stock was worth $40 per share. Two months later, Brandon sells the 100 shares of stock for $60 per share. Kimberly and Brandon are in the 24 percent and 10 percent marginal tax brackets, respectively. How much family tax savings is achieved through this transaction?

Accepted Answer

The answer of Kimberly gave 100 shares of stock to...

Question 10

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-To whom do the doctrines of constructive receipt and claim of right apply?

Accepted Answer

The doctrines of constructive receipt and claim of right apply to both cash basis and accrual basis taxpayers.

Question 11

In 2018, Willy gave his son 4,000 shares of ABC stock valued at $10 per share. Two weeks after the gift, ABC declared a $1 per share dividend. Willy also gave his son some municipal bonds the morning of June 30. On July 3, Willy received a check for $400 for the interest on the bonds. Finally, Willy gave his son five coupons from other bonds that he owned. On August 2, the son exchanged the coupons at a bank receiving the $200 interest due on the coupons. What is the son's taxable income from these events?

Accepted Answer

The answer of In 2018, Willy gave his son 4,000...

Question 12

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Abdo Corporation wants to determine if it can qualify to use the cash method under the $25 million gross receipts test for 2018. Its gross receipts were $26 million for 2018, $24 million for 2017, $23 million for 2016, and $22 million for 2015. What amount of gross receipts is relevant for determining if Abdo can use the cash method for 2018?

Accepted Answer

The answer of Put T for Taxable income or N...

Question 13

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Which of the following doctrines does not affect the timing of income recognition for a cash basis taxpayer?

Accepted Answer

The all events test is primarily relevant for accrual basis taxpayers, not cash basis taxpayers. It determines when all the events have occurred that fix the right to receive income and the amount can be determined with reasonable accuracy. Cash basis taxpayers recognize income when it is actually or constructively received.

Question 14

Taylor Corporation, an accrual-basis calendar-year corporation, rented an office building to Austin for $3,000 per month. On December 28, 2017, Taylor received a deposit of $4,000 in addition to the first and last months' rent. Occupancy began on January 1, 2018. On August 15, 2018 Austin closed the business. In 2018, Taylor had collected rent for February, March, April and May, but collected no payments thereafter. Taylor withheld $1,100 from the deposit because of damage to the property and $1,500 for unpaid rent. Taylor refunded the balance of the deposit to Austin. What amount should Taylor report as gross income for 2018?

Accepted Answer

The answer of Taylor Corporation, an accrual-basis calendar-year corporation, rented...

Question 15

Sarah and Jason are married and live in a community property state. Sarah is a nurse and earns $40,000 per year; Jason is an engineer and earns $75,000 per year. They have a joint bank account that earned $500 in interest and Jason recently invested in some stocks that paid a $2,000 dividend. If Sarah and Jason file separate returns, how much income would Sarah report?

Accepted Answer

In a community property state, income earned by either spouse during marriage is considered equally owned by both spouses. Therefore, Sarah and Jason would each report half of their combined income and half of the investment income. Their combined income is $40,000 (Sarah) + $75,000 (Jason) = $115,000, and the investment income is $500 (interest) + $2,000 (dividends) = $2,500. Half of the combined income is $115,000 / 2 = $57,500, and half of the investment income is $2,500 / 2 = $1,250. Therefore, Sarah would report $57,500 + $1,250 = $58,750.

Question 16

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Which of the following explain why it is important to determine the period in which income is recognized?

Accepted Answer

All of the above are explanations.

Question 17

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-All of the following are acceptable methods of accounting for revenue and expenses for tax purposes except:

Accepted Answer

All of the listed methods are acceptable for accounting for revenue and expenses for tax purposes.

Question 18

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Carbon Corporation had a $2,000,000 contract to build a small hospital with total costs estimated at $1,600,000. It received the following payments and incurred the following expenses over the three-year contract period: Year Payments Expenses
1 $ 400,000 $300,000
2 $1,200,000 $900,000
3 $ 400,000 $550,000
Under the percentage-of-completion method, how much profit should Carbon recognize in year 2?
A) $400,000
B) $150,000
B) $300,000
C) $225,000

Accepted Answer

The percentage-of-completion method recognizes revenue and profit based on the progress of the construction project. To calculate the profit recognized in year 2, we first determine the total profit from the contract, then calculate the percentage of completion up to year 2, and finally apply this percentage to the total profit to find the profit recognized by year 2, subtracting the profit recognized in year 1.Total contract value = $2,000,000Total estimated costs = $1,600,000Total profit = $2,000,000 - $1,600,000 = $400,000Expenses by the end of year 2 = $300,000 (year 1) + $900,000 (year 2) = $1,200,000Percentage of completion by the end of year 2 = $1,200,000 / $1,600,000 = 75%Profit to be recognized by the end of year 2 = 75% of total profit = 0.75 * $400,000 = $300,000Profit recognized in year 1 = (Year 1 expenses / Total estimated costs) * Total profit = ($300,000 / $1,600,000) * $400,000 = 18.75% of $400,000 = $75,000Profit recognized in year 2 = Profit by the end of year 2 - Profit recognized in year 1 = $300,000 - $75,000 = $225,000

Question 19

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Cal (an accrual-basis taxpayer) enters into a ten-year lease on some rental property. In year 1, Cal receives $3,000 as a security deposit, $5,000 for the first year's rent, and $5,000 for the last year's rent. How much income must Cal report in this first year?

Accepted Answer

The answer of Put T for Taxable income or N...

Question 20

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes.
-Which type of book/tax differences are accounted for as deferred tax assets or deferred tax liabilities?

Accepted Answer

Timing differences are the only type of book/tax differences that result in deferred tax assets or liabilities. Permanent differences do not reverse over time, thus do not create deferred taxes.

Quiz 3: Determining Gross Income

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -All of the following are allowable tax years except: A. The last Friday of July B). December 31 C). The Sunday closest to March 1 D). August 31

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Which of the following is an application of the wherewithal-to-pay concept?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Clayton Corporation receives $100,000 to provide garbage service for the next four years:

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -To whom do the doctrines of constructive receipt and claim of right apply?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Which of the following doctrines does not affect the timing of income recognition for a cash basis taxpayer?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Which of the following explain why it is important to determine the period in which income is recognized?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -All of the following are acceptable methods of accounting for revenue and expenses for tax purposes except:

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Which type of book/tax differences are accounted for as deferred tax assets or deferred tax liabilities?