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Federal Taxation
Quiz 18: Accounting Periods and Methods
Path 4
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Question 41
Multiple Choice
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, 2017, the shareholder-employee received $120,000 salary. The corporation paid the shareholder-employee a salary of $15,000 during the period beginning October 1, 2017 through December 31, 2017.
Question 42
Multiple Choice
When the IRS requires a taxpayer to change accounting methods:
Question 43
Multiple Choice
Karen, an accrual basis taxpayer, sold goods in December 2017 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 2018. The note bore interest at the Federal rate. The fair market value of the note at the end of 2017 was $18,000. Karen collected $20,500 from the customer in April 2018, $20,000 principal plus $500 interest. Under the accrual method, Karen must recognize income of:
Question 44
Multiple Choice
Ivory Fast Delivery Company, an accrual basis taxpayer, frequently has claims for damages to property the company delivered. Often the claim is not filed until a month after the delivery. In the past, approximately 80% of the claims are paid by Ivory. In 2017, claims for $80,000 were filed. The company refused to pay $20,000 of the claims (because they were not valid) , and paid $50,000. The remaining $10,000 in claims were processed and paid in January 2018. Also, in January 2018, claims for $8,000 were filed for deliveries made in 2017, and $6,000 was paid on these claims by March 15, 2018. Ivory has not elected to use the recurring item exception to economic performance. Under the all-events and economic performance tests, Ivory can accrue as an expense for 2017:
Question 45
Multiple Choice
Pink Corporation is an accrual basis taxpayer that uses the recurring item exception to the economic performance test for all relevant years. For 2017, the corporation's income subject to state income tax was $500,000 and the state corporate tax rate was 6%. During 2017, the corporation paid $24,000 on its estimated state income tax liability for that year. The remaining $6,000 of 2017 state income tax was paid in April 2018. In June 2017, the corporation paid $9,000 on its year 2016 state income tax liability, as a result of an audit of the 2016 return that was conducted in 2017. The company has elected to use the recurring item exception to economic performance. As a result of the above, the corporation should deduct in 2017 on its Federal income tax return state income taxes of:
Question 46
Multiple Choice
In the case of an accrual basis taxpayer, an item of income:
Question 47
Multiple Choice
In 2016, Godfrey received a $50,000 sales commission on a long-term contract. But in 2017, the customer filed bankruptcy and Godfrey's employer was not able to collect from the customer. Under the bonus agreement, Godfrey was required to repay the employer $20,000 of the bonus. Godfrey was in the 35% marginal tax bracket in 2016 but he is in the 25% marginal tax bracket in 2017.
Question 48
Multiple Choice
Which of the following taxpayers is required to use the accrual method of accounting?
Question 49
Multiple Choice
In 2017, Swan Company discovered that it had for the past 10 years capitalized as a production cost certain expenses that are properly classified as administrative expenses. The total amount of the expense for 2016 was $300,000, $60,000 of the item was included in the ending inventory that year and $240,000 was deducted as cost of goods sold.
Question 50
Multiple Choice
Generally, deductions for additions to reserves for estimated future costs (e.g., an allowance for estimated warranty costs) are not allowed for Federal income tax purposes because allowing the deduction would: