Deck 2: Income Tax Concepts

Question 1

Match each statement with the correct term below.
a.Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
b.A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
c.Taxpayer reports income as earned and deductions as incurred.
d.The result of an arms-length transaction.
e.Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
f.The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
g.The reporting of an item of income or expense on a tax return
h.No income is realized until the taxpayer's invested capital is recovered.
i.All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
j.These taxpayers are not deemed to transact at arms-length.
Capital Recovery Concept

Answer 1

H

Question 2

Match each term with the correct statement below.
a.Allocates income, losses, and deductions to its owners for inclusion in their personal returns.
b.Each tax unit must keep separate records and report the results of its operations separate and apart from other tax units.
c.Income from services must be taxed to the taxpayer rendering the service and income from property must be taxed to the owner of the property.
d.Any tax year that ends on the last day of a month other than December.
e.All taxpayers must report the results of their operations on an annual basis.
f.A tax year that ends on December 31.
g.A tax entity that is liable for the payment of tax.
Entity Concept

Answer 2

B

Question 3

Match each statement with the correct term below.
a.Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
b.A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
c.Taxpayer reports income as earned and deductions as incurred.
d.The result of an arms-length transaction.
e.Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
f.The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
g.The reporting of an item of income or expense on a tax return
h.No income is realized until the taxpayer's invested capital is recovered.
i.All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
j.These taxpayers are not deemed to transact at arms-length.
Recognition

Answer 3

G

Question 4

Match each term with the correct statement below.
a.Allocates income, losses, and deductions to its owners for inclusion in their personal returns.
b.Each tax unit must keep separate records and report the results of its operations separate and apart from other tax units.
c.Income from services must be taxed to the taxpayer rendering the service and income from property must be taxed to the owner of the property.
d.Any tax year that ends on the last day of a month other than December.
e.All taxpayers must report the results of their operations on an annual basis.
f.A tax year that ends on December 31.
g.A tax entity that is liable for the payment of tax.
Calendar year

Question 5

Match each term with the correct statement below.
a.Allocates income, losses, and deductions to its owners for inclusion in their personal returns.
b.Each tax unit must keep separate records and report the results of its operations separate and apart from other tax units.
c.Income from services must be taxed to the taxpayer rendering the service and income from property must be taxed to the owner of the property.
d.Any tax year that ends on the last day of a month other than December.
e.All taxpayers must report the results of their operations on an annual basis.
f.A tax year that ends on December 31.
g.A tax entity that is liable for the payment of tax.
Annual Accounting Period Concept

Question 6

Match each statement with the correct term below.
a.Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
b.A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
c.Taxpayer reports income as earned and deductions as incurred.
d.The result of an arms-length transaction.
e.Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
f.The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
g.The reporting of an item of income or expense on a tax return
h.No income is realized until the taxpayer's invested capital is recovered.
i.All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
j.These taxpayers are not deemed to transact at arms-length.
Accrual Method

Question 7

Match each statement with the correct term below.
a.Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
b.A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
c.Taxpayer reports income as earned and deductions as incurred.
d.The result of an arms-length transaction.
e.Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
f.The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
g.The reporting of an item of income or expense on a tax return
h.No income is realized until the taxpayer's invested capital is recovered.
i.All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
j.These taxpayers are not deemed to transact at arms-length.
Legislative Grace Concept

Question 8

Match each statement with the correct term below.
a.Income is subject to tax when it is received without restrictions as to its use or disposition.
b.Income is considered received when it is credited to the taxpayer's account or made unconditionally available to the taxpayer.
c.A concept that is fundamental to the progressive tax rate structure.
d.To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer.
e.The amount of a deduction may not exceed its cost.
f.Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax.
g.A type of deductible expenditure that embodies the profit motive requirement.
h.Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated.
i.A category of expenses that is specifically disallowed.
Constructive Receipt Doctrine

Question 9

Match each statement with the correct term below.
a.Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
b.A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
c.Taxpayer reports income as earned and deductions as incurred.
d.The result of an arms-length transaction.
e.Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
f.The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
g.The reporting of an item of income or expense on a tax return
h.No income is realized until the taxpayer's invested capital is recovered.
i.All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
j.These taxpayers are not deemed to transact at arms-length.
Related party

Question 10

Match each statement with the correct term below.
a.Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
b.A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
c.Taxpayer reports income as earned and deductions as incurred.
d.The result of an arms-length transaction.
e.Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
f.The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
g.The reporting of an item of income or expense on a tax return
h.No income is realized until the taxpayer's invested capital is recovered.
i.All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
j.These taxpayers are not deemed to transact at arms-length.
Substance Over Form Doctrine

Question 11

Match each statement with the correct term below.
a.Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
b.A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
c.Taxpayer reports income as earned and deductions as incurred.
d.The result of an arms-length transaction.
e.Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
f.The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
g.The reporting of an item of income or expense on a tax return
h.No income is realized until the taxpayer's invested capital is recovered.
i.All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
j.These taxpayers are not deemed to transact at arms-length.
Realization

Question 12

Match each statement with the correct term below.
a.Income is subject to tax when it is received without restrictions as to its use or disposition.
b.Income is considered received when it is credited to the taxpayer's account or made unconditionally available to the taxpayer.
c.A concept that is fundamental to the progressive tax rate structure.
d.To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer.
e.The amount of a deduction may not exceed its cost.
f.Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax.
g.A type of deductible expenditure that embodies the profit motive requirement.
h.Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated.
i.A category of expenses that is specifically disallowed.
Claim of Right Doctrine

Question 13

Match each statement with the correct term below.
a.Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
b.A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
c.Taxpayer reports income as earned and deductions as incurred.
d.The result of an arms-length transaction.
e.Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
f.The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
g.The reporting of an item of income or expense on a tax return
h.No income is realized until the taxpayer's invested capital is recovered.
i.All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
j.These taxpayers are not deemed to transact at arms-length.
Tax Benefit Rule

Question 14

Match each term with the correct statement below.
a.Allocates income, losses, and deductions to its owners for inclusion in their personal returns.
b.Each tax unit must keep separate records and report the results of its operations separate and apart from other tax units.
c.Income from services must be taxed to the taxpayer rendering the service and income from property must be taxed to the owner of the property.
d.Any tax year that ends on the last day of a month other than December.
e.All taxpayers must report the results of their operations on an annual basis.
f.A tax year that ends on December 31.
g.A tax entity that is liable for the payment of tax.
Conduit entity

Question 15

Match each term with the correct statement below.
a.Allocates income, losses, and deductions to its owners for inclusion in their personal returns.
b.Each tax unit must keep separate records and report the results of its operations separate and apart from other tax units.
c.Income from services must be taxed to the taxpayer rendering the service and income from property must be taxed to the owner of the property.
d.Any tax year that ends on the last day of a month other than December.
e.All taxpayers must report the results of their operations on an annual basis.
f.A tax year that ends on December 31.
g.A tax entity that is liable for the payment of tax.
Assignment of Income

Question 16

Match each term with the correct statement below.
a.Allocates income, losses, and deductions to its owners for inclusion in their personal returns.
b.Each tax unit must keep separate records and report the results of its operations separate and apart from other tax units.
c.Income from services must be taxed to the taxpayer rendering the service and income from property must be taxed to the owner of the property.
d.Any tax year that ends on the last day of a month other than December.
e.All taxpayers must report the results of their operations on an annual basis.
f.A tax year that ends on December 31.
g.A tax entity that is liable for the payment of tax.
Taxable entity

Question 17

Match each statement with the correct term below.
a.Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
b.A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
c.Taxpayer reports income as earned and deductions as incurred.
d.The result of an arms-length transaction.
e.Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
f.The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
g.The reporting of an item of income or expense on a tax return
h.No income is realized until the taxpayer's invested capital is recovered.
i.All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
j.These taxpayers are not deemed to transact at arms-length.
Cash Method

Question 18

Match each statement with the correct term below.
a.Income is subject to tax when it is received without restrictions as to its use or disposition.
b.Income is considered received when it is credited to the taxpayer's account or made unconditionally available to the taxpayer.
c.A concept that is fundamental to the progressive tax rate structure.
d.To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer.
e.The amount of a deduction may not exceed its cost.
f.Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax.
g.A type of deductible expenditure that embodies the profit motive requirement.
h.Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated.
i.A category of expenses that is specifically disallowed.
Administrative Convenience

Question 19

Match each statement with the correct term below.
a.Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
b.A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
c.Taxpayer reports income as earned and deductions as incurred.
d.The result of an arms-length transaction.
e.Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
f.The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
g.The reporting of an item of income or expense on a tax return
h.No income is realized until the taxpayer's invested capital is recovered.
i.All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
j.These taxpayers are not deemed to transact at arms-length.
All-Inclusive Income Concept

Question 20

Match each term with the correct statement below.
a.Allocates income, losses, and deductions to its owners for inclusion in their personal returns.
b.Each tax unit must keep separate records and report the results of its operations separate and apart from other tax units.
c.Income from services must be taxed to the taxpayer rendering the service and income from property must be taxed to the owner of the property.
d.Any tax year that ends on the last day of a month other than December.
e.All taxpayers must report the results of their operations on an annual basis.
f.A tax year that ends on December 31.
g.A tax entity that is liable for the payment of tax.
Fiscal year

Question 21

Bethany bought a new suit to wear to work.She will not be able to deduct the cost of the suit even though she wears it to work.

Question 22

The Nadal Company mails its annual dividend check on December 31.Even when the shareholders receive their check in the following year,they must report the income in the year the check was written and mailed.

Question 23

John sells his uncle Bob land held for investment for $10,000 that he had purchased 3 years ago for $12,000.John is precluded from taking the $2,000 loss under the arm's-length transaction concept since this is a related party transaction.

Question 24

Match each statement with the correct term below.
a.Income is subject to tax when it is received without restrictions as to its use or disposition.
b.Income is considered received when it is credited to the taxpayer's account or made unconditionally available to the taxpayer.
c.A concept that is fundamental to the progressive tax rate structure.
d.To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer.
e.The amount of a deduction may not exceed its cost.
f.Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax.
g.A type of deductible expenditure that embodies the profit motive requirement.
h.Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated.
i.A category of expenses that is specifically disallowed.
Personal Expense

Question 25

Match each statement with the correct term below.
a.Income is subject to tax when it is received without restrictions as to its use or disposition.
b.Income is considered received when it is credited to the taxpayer's account or made unconditionally available to the taxpayer.
c.A concept that is fundamental to the progressive tax rate structure.
d.To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer.
e.The amount of a deduction may not exceed its cost.
f.Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax.
g.A type of deductible expenditure that embodies the profit motive requirement.
h.Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated.
i.A category of expenses that is specifically disallowed.
Capital Recovery Concept

Question 26

Under the all-inclusive income concept,the tax law always starts with the proposition that all receipts of cash are taxable.

Question 27

The taxpayer will be able to benefit from capital recovery on business equipment over the life of the asset and any remaining capital will be recovered when the asset is sold.

Question 28

Benji hired his three-year-old son to work in his engineering consulting firm.As long as Benji fills out all the forms and properly deposits the paychecks in his son's bank account,he will be able to deduct the expenditure as a business expense.

Question 29

Under the Wherewithal to Pay concept,income should be recognized and a tax paid on the income when the taxpayer has the resources to pay the tax.

Question 30

Under the ability-to-pay concept,taxpayers are required to have tax withheld from income or to make estimated tax payments so that the taxpayer avoids a large tax liability at the end of the year.

Question 31

Match each statement with the correct term below.
a.Income is subject to tax when it is received without restrictions as to its use or disposition.
b.Income is considered received when it is credited to the taxpayer's account or made unconditionally available to the taxpayer.
c.A concept that is fundamental to the progressive tax rate structure.
d.To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer.
e.The amount of a deduction may not exceed its cost.
f.Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax.
g.A type of deductible expenditure that embodies the profit motive requirement.
h.Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated.
i.A category of expenses that is specifically disallowed.
Wherewithal-to-Pay Concept

Question 32

An individual can legally assign income to another individual,and the assignment relieves the owner of the income from paying tax on the income.

Question 33

Match each statement with the correct term below.
a.Income is subject to tax when it is received without restrictions as to its use or disposition.
b.Income is considered received when it is credited to the taxpayer's account or made unconditionally available to the taxpayer.
c.A concept that is fundamental to the progressive tax rate structure.
d.To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer.
e.The amount of a deduction may not exceed its cost.
f.Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax.
g.A type of deductible expenditure that embodies the profit motive requirement.
h.Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated.
i.A category of expenses that is specifically disallowed.
Business Purpose Concept

Question 34

An asset's adjusted basis is the amount of unrecovered investment after considering any increases and decreases in the original purchase price.

Question 35

Match each statement with the correct term below.
a.Income is subject to tax when it is received without restrictions as to its use or disposition.
b.Income is considered received when it is credited to the taxpayer's account or made unconditionally available to the taxpayer.
c.A concept that is fundamental to the progressive tax rate structure.
d.To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer.
e.The amount of a deduction may not exceed its cost.
f.Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax.
g.A type of deductible expenditure that embodies the profit motive requirement.
h.Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated.
i.A category of expenses that is specifically disallowed.
Ability-to-Pay Concept

Question 36

Match each statement with the correct term below.
a.Income is subject to tax when it is received without restrictions as to its use or disposition.
b.Income is considered received when it is credited to the taxpayer's account or made unconditionally available to the taxpayer.
c.A concept that is fundamental to the progressive tax rate structure.
d.To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer.
e.The amount of a deduction may not exceed its cost.
f.Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax.
g.A type of deductible expenditure that embodies the profit motive requirement.
h.Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated.
i.A category of expenses that is specifically disallowed.
Investment Expense

Question 37

Any deduction taken in a prior year that is recovered in a subsequent year is reported as income in the year it is recovered,to the extent that a tax benefit was received from the deduction.

Question 38

Under the pay-as-you-go concept,the tax base used to compute the taxpayer's income tax liability is a net income number.

Question 39

Frank rents an apartment to Pete and collects a cleaning deposit to be repaid at the end of the lease.Under the claim-of-right doctrine,Frank includes the deposit in income when collected.

Question 40

The administrative convenience concept explains why some items are not treated consistently when the cost of implementing a concept exceeds the benefit of using it.

Question 41

Sanchez Company allows its employees to make personal copies without charge on the company copy machines.What concept,construct,or doctrine helps explain why the benefit received is not taxable to Sanchez employees?

A)Administrative Convenience Concept.
B)Assignment of Income Doctrine.
C)Arms-length Transaction Concept.
D)Ability To Pay Concept.
E)Pay As You Go Concept.

Question 42

Which of the following is/are based on an ability-to-pay concept?
I)A flat tax .
II)Johson City charges all households a flat fee of $25 per month for water usage.
III)Boone County recently established Route 89 as a toll road.All cars traveling from East Johnson City to Appleton pay $1.

A)Only statement I is correct.
B)Only statement II is correct.
C)Statements II and III are correct
D)Statements I, II, and III are correct.
E)None of the statements are correct.

Question 43

The allowance of deductions in calculating taxable income and the use of a progressive tax rate structure are a direct application of the

A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.

Question 44

Susan purchased a lot for investment purposes.She paid $10,000 for the lot.Three years later she sold the lot to her daughter for $8,000.Susan cannot deduct the loss due to

A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.

Question 45

Sandra sells a business-use warehouse to her wholly owned corporation.Sandra realizes a loss of $13,000 on the sale.(Sales price,$102,000,less adjusted basis,$115,000).Tax law does not permit Sandra a deduction for the $13,000 loss.Which of the following explain(s)this tax result?
I)Arm's-length Transaction Concept.
II)Pay-As-You-Go Concept.
III)Legislative Grace Concept
IV)Business Purpose Concept.

A)Only statement I is correct.
B)Only statement II is correct.
C)Statements III and IV are correct.
D)Statements I and III are correct.
E)Statements I, II, III, and IV are correct.

Question 46

Thomas had $8,500 withheld from his paycheck,but since he has a large amount of interest and dividends,he is required to make quarterly estimated tax payments due to the

A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.

Question 47

Sam coaches a little league baseball team.He makes 15 copies of the team's schedule to give to the players on his employer's copy machine.The cost of the copies is not income to Sam due to the

A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.

Question 48

Victor receives a $2,000 tax credit for childcare.The credit was earned because of Victor's expenditures for daycare for his son while Victor worked.What concept,construct,or doctrine helps explain why Victor receives this tax credit?

A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.

Question 49

No income is taxed until the taxpayer is allowed the return of the original investment due to the

A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Business Purpose concept

Question 50

Carter sold 100 shares of Mitsui,Inc.for $8,000 but he only recognized $2,000 as income because the original purchase price was $6,000.This is due to the

A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Business Purpose Concept.

Question 51

All deductions are allowed because of the legislative grace concept.

Question 52

The IRS has a penalty for underpayment of estimated taxes.This penalty exists because of which of the following concepts,constructs,or doctrines?

A)Pay-As-You-Go.
B)Tax Benefit Rule.
C)Substance-Over-Form.
D)Administrative Convenience.
E)Ability-To-Pay.

Question 53

Which of the following concepts/doctrines state(s)that items may be omitted from the tax base whenever the cost of implementing a concept exceeds the benefit of using it?

A)Ability-to-Pay.
B)Administrative Convenience.
C)Arm's-length Transaction.
D)Substance-Over-Form.
E)Tax Benefit Rule.

Question 54

The rules that limit self-dealing through the related party provisions is a result of the

A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.

Question 55

Jerome,a self-employed attorney,is scrambling around to refigure his estimated 2013 income tax liability,because he needs to mail his third quarter estimated tax payment tomorrow (September 15,2013).What concept,construct,or doctrine is causing Jerome to scramble?

A)Administrative Convenience Concept.
B)Ability To Pay Concept.
C)Arms-length Transaction Concept.
D)Pay- As-You-Go Concept.
E)Assignment of Income Doctrine.

Question 56

The ability-to-pay concept is fundamental to the income tax structure.Constructs used to implement this concept include
I)Deductions
II)Progressive tax rates
III)Exclusions
IV)Business losses

A)Only statement II is correct.
B)Statements I, III, and IV are correct.
C)Statements I, II, and IV are correct.
D)Statements I and III are correct.
E)Statements I, II, III, and IV are correct.

Question 57

Some discontented taxpayers have suggested that complexity be removed from the income tax structure by applying a flat tax rate to the gross income of all taxpayers.This approach violates which concept?

A)Ability to Pay Concept.
B)All-inclusive Income Concept.
C)Entity Concept.
D)Pay-as-You-Go Concept.
E)Wherewithal to Pay Concept.

Question 58

Allowing individuals to deduct a standard deduction amount in lieu of itemizing their allowable personal deductions is an application of the

A)Administrative Convenience Concept.
B)Wherewithal-to-Pay Concept.
C)Annual Accounting Period Concept
D)Capital Recovery Concept.
E)Business Purpose Concept.

Question 59

When items of income are omitted because the cost of the time and effort of the taxpayer to accumulate the information,it is an application of the

A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.

Question 60

Withholding of taxes from the taxpayers wages and quarterly estimated tax payments are a result of the

A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.

Question 61

Which of the following is a taxable entity?

A)Sole Proprietorship.
B)Partnership.
C)S Corporation.
D)C Corporation.

Question 62

Will is a partner in Oil Exploration Limited Partnership.For the current year,the partnership reports net income of $130,000.Will's share of the income is $1,300.Will reports that amount in his gross income.The partnership pays no income tax on its earnings.What concept,construct,or doctrine applies here?

A)Annual Accounting Period Concept.
B)Arms-length Transaction Concept.
C)Assignment of Income Doctrine.
D)Entity Concept.
E)Substance Over Form Doctrine.

Question 63

Samuel owns some land,which has an oil deposit underneath it.His annual royalties vary from $50,000 to $60,000.Because Samuel is in the highest marginal tax rate bracket,he would like to have some (or all)of the royalty income taxed to his son,Jack,thus lowering the overall tax on the royalty income.To do this
I)Samuel can gift part of the land to Jack.
II)Samuel can gift part of each year's royalties to Jack.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 64

Ronald is a consultant for Economic Forecasters,Inc.In an effort to minimize his tax liability he enters into a legal contract transferring 25% of the fees from a new consulting contract to his son Ken,who is 42,and owns a pest control business.Which of the following statements concerning the transaction is correct?
I)The assignment-of-income doctrine does not apply if Ken and Ronald are in the same marginal tax bracket.
II)The assignment-of- income doctrine does not apply if Ronald's son is under age 14.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 65

Wintrop has $4,000 of state income taxes withheld from his salary during 2012.On his 2012 income tax return,Wintrop properly deducts the $4,000 as state taxes paid.Upon filing his 2012 state tax return on April 15,2013,he determines that his actual State income tax for 2012 is only $3,300.He receives a $700 refund on May 25,2013 from the amounts withheld by the state.What concept(s),construct(s),or doctrine(s)dictate that the $700 is included in Wintrop's 2013 income?
I)Claim of Right Doctrine.
II)Constructive Receipt Doctrine.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 66

Isabel is a self-employed electrician.All cash payments she receives from customers are deposited into a bank account held in the name of her son.Isabel does not have use of the funds.Therefore,she does not think she needs to include the cash receipts in her gross income.What concept or doctrine applies to this situation?

A)Pay As You Go Concept.
B)Assignment of Income Doctrine.
C)Annual Accounting Period Concept.
D)Substance Over Form Doctrine
E)Arms-length Transaction Concept.

Question 67

According to the entity concept
I)a sole proprietorship is similar to a conduit entity.
II)a sole proprietor cannot convert nondeductible personal items into deductible business items by commingling expenditures.
III)a partnership is an example of a mixture of a taxable and a conduit entity.
IV)an S corporation is a tax paying entity.

A)Statements I and II are correct.
B)Statements II and III are correct.
C)Only statement IV is correct.
D)Statements I, II, and III are correct.
E)Statements I, II, and IV are correct.

Question 68

Rachel paid $1,000 for supplies in 2012.In 2013,the vendor finds a $200 mistake on the invoice and refunds the overpayment to Rachel.Which of the following doctrines or concepts is the least helpful in determining how the 2013 transaction should be reported for tax purposes?

A)Accounting Period.
B)Tax Benefit Rule.
C)Claim of Right.
D)Assignment of Income.
E)All-Inclusive Income.

Question 69

During the current year,Trane invests $35,000 in each of two separate corporations.Each investment gives him a 20% ownership interest.Brazil Corporation is a regular corporation that has taxable income of $200,000 and pays dividends totaling $50,000.China Corporation is an S corporation that has taxable income of $100,000 and pays $50,000 of dividends.As a result of these two investments,Trane
I)Has $40,000 of taxable income from Brazil Corporation.
II)Has $20,000 of taxable income from China Corporation.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 70

In the current year,Darlene purchases a 20% interest in the Grant Partnership (GP)for $10,000.During the current year,GP has a taxable income of $80,000 and Darlene withdraws $5,000 of cash from the partnership.Darlene's income to be reported from her investment in GP and her basis in GP at the end of the year is:

Question 71

During the current year,Walter invests $35,000 in each of two separate corporations.Each investment gives him a 20% ownership interest.Corporation X is a C corporation that has taxable income of $200,000 and pays dividends totaling $50,000.Corporation Z is an S corporation that has taxable income of $100,000 and pays $50,000 of dividends.As a result of these two investments,Walter
I)Has $10,000 of taxable income from Corporation X.
II)Has $10,000 of taxable income from Corporation Z.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 72

On June 1,Don receives a rental house from his Uncle Sidney as a graduation present.The monthly rental on the house is $1,000.On June 25,the tenant pays Uncle Sidney the $1,000 rent payment for June by mistake.Which of the following concepts,constructs,or doctrines is the most relevant in determining the tax treatment of the $1,000 rental payment?

A)Capital Recovery Concept.
B)Assignment of Income Doctrine.
C)Constructive Receipt Doctrine.
D)Wherewithal-to-Pay Concept.
E)Substance Over Form Doctrine.

Question 73

Joanne,a single individual,has $2,000 in state taxes withheld from her salary in 2013.Her total itemized deductions are $6,150.She claims the $2,000 as an itemized deduction on her 2013 tax return.In 2014 she receives a state income tax refund of $700.Under the tax benefit rule she has to report income in 2014 of

A)$2,000
B)$ 700.
C)$ 50.
D)$ -0-.
E)$ -0-, but Joanne must file an amended 2013 tax and reduce her itemized deductions by $700.

Question 74

Alfred is a consultant for Data Planners.In an effort to minimize his tax liability he enters into a legal contract transferring 25% of the fees from a new consulting contract to his son Ken,who is 42,and owns a pest control business.Which of the following statements concerning the transaction is correct?
I)The assignment-of-income doctrine prevents Alfred from transferring taxation of the income to his son.
II)The assignment-of- income doctrine does not apply because the transfer is supported by a legal contract.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct
D)Neither statement is correct.

Question 75

According to the entity concept
I)each unit must keep separate records.
II)each unit reports the results of operations separate and apart from owners.
III)every unit is liable for tax on its income.
IV)each unit is classified as one of two basic entity types.

A)Statements I and II are correct.
B)Statements II and III are correct.
C)Only statement IV is correct.
D)Statements I, III, and IV are correct.
E)Statements I, II, and IV are correct.

Question 76

Riley owns some land,which has an oil deposit underneath it.His annual royalties are usually around $100,000.Because Riley is in the highest marginal tax rate bracket,he would like to have some (or all)of the royalty income taxed to his son,Mark,thus lowering the overall tax on the royalty income.To do this
I)Riley can gift part of the land to Mark.
II)Riley can gift all of the land to Mark.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 77

Which of the following constructs have developed from the Annual Accounting Period Concept?
I)Entity Concept.
II)Capital Recovery.
III)Related Party.
IV)Tax Benefit Rule.

A)Only statement I is correct.
B)Statements II and III are correct.
C)Statements III and IV are correct.
D)Only statement IV is correct.
E)Statements II, III, and IV are correct.

Question 78

Rodrigo has $5,000 of state income taxes withheld from his salary during 2012.On his 2012 income tax return,Rodrigo properly deducts the $5,000 as state taxes paid.Upon filing his 2012 state tax return on April 15,2013,he determines that his actual State income tax for 2012 is only $4,100.He receives a $900 refund on May 25,2013 from the amounts withheld by the state.What concept(s),construct(s),or doctrine(s)dictate that the $900 is included in Rodrigo's 2013 income?
I)Annual Accounting Period Concept.
II)Tax Benefit Rule.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 79

Margarita,a single individual,has $2,000 in state taxes withheld from her salary in 2012.Her total itemized deductions are $7,500.She claims the $2,000 as an itemized deduction on her 2012 tax return.In 2013,she receives a state income tax refund of $400.Under the tax benefit rule she has to report income in 2013 of

A)$2,000.
B)$ 400.
C)$ 200.
D)$ -0-.
E)$ -0-, but Margarita must file an amended 2011 tax and reduce her itemized deductions by $400.

Question 80

Marianne's uncle Mike gives her $20,000 of 8% bonds on July 1st of the current year.The bonds pay interest on June 30 and December 31.
I)Marianne has $20,000 of income from the receipt of the bonds.
II)Marianne has $1,600 of interest income from the bonds in the year of the gift.
III)Marianne has $800 of interest income from the bonds in the year of the gift.
IV)Mike has $800 of interest income from the bonds in the year of the gift.

A)Only statement I is correct.
B)Only statement II is correct.
C)Statements I and III are correct.
D)Statements I and II are correct.
E)Statements III and IV are correct.