Question 1

The hybrid method of accounting involves the use of both the accrual and cash methods of accounting.

Accepted Answer

The hybrid method of accounting combines elements of accrual and cash accounting, making it a combination of the two methods. It allows businesses to have better financial control and make informed decisions by using the best of both accounting methods.

Question 2

Amy is a calendar year taxpayer reporting on the cash basis. Indicate which of the following income or expense items should not be included in her 2015 tax return.

Accepted Answer

B

Question 3

Quince Corporation changes its year-end from a fiscal year-end to a calendar year-end. The corporation has taxable income of $39,000 for its 3-month short period beginning October 1, 2015 and ending December 31, 2015. Calculate the corporation's tax for the short period.

Accepted Answer

$39,000 / 3 months × 12 months = $156,000
Tax on $156,000 = $44,090; $44,090 = [$22,250 + 39% × ($156,000 - $100,000)]
$11,023 = $44,090 / 12 × 3, short-period tax

Question 4

Mark the correct answer. In cash basis accounting, for tax purposes:

Accepted Answer

The answer of Mark the correct answer. In cash basis...

Question 5

The Dot Corporation has changed its year-end from a calendar year-end to August 31. The income for its short period from January 1 to August 31 is $54,000. The tax for this short period is:

Accepted Answer

The answer of The Dot Corporation has changed its year-end...

Question 6

Becky is a cash basis taxpayer with the following transactions during her calendar tax year: What is the amount of Becky's taxable income from her business for this tax year?

Accepted Answer

The answer of Becky is a cash basis taxpayer with...

Question 7

Which one of the following entities cannot use the cash method for tax purposes?

Accepted Answer

The answer of Which one of the following entities cannot...

Question 8

All S corporations must use the accrual basis of accounting.

Accepted Answer

S corporations are not required to use the accrual basis of accounting. They are allowed to use either the cash or accrual basis, as long as they use it consistently and accurately reflect their financial transactions.

Question 9

Generally, cash basis taxpayers must account for payments of prepaid interest using the accrual method.

Accepted Answer

Generally, prepaid interest payments must be accounted for using the accrual method for cash basis taxpayers.

Question 10

William, a cash-basis sole proprietor, had the following receipts and disbursements for 2015: For 2015, what amount should William report as net earnings from self-employment?

Accepted Answer

The answer of William, a cash-basis sole proprietor, had the...

Question 11

In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

Accepted Answer

Accrual basis taxpayers record income when it is earned, not necessarily when it is received. This means that income is recognized when the taxpayer earns it, even if payment is not received until a later date.

Question 12

"Annualizing" is a method by which the taxpayer can usually decrease the amount of tax he or she pays.

Accepted Answer

Annualizing actually involves estimating and adjusting tax payments throughout the year to accurately reflect income earned and taxes owed, which can often increase the amount of tax paid rather than decrease it.

Question 13

Under the cash basis of accounting, expenses are generally deducted in the year they are paid.

Accepted Answer

Expenses are generally deducted in the year they are paid under the cash basis of accounting.

Question 14

From the records of Tom, a cash basis sole proprietor, the following information was available: What amount should Tom report as net earnings from self-employment?

Accepted Answer

To calculate the net earnings from self-employment, we need to add the gross receipts and other income and subtract the allowable deductions. 
Gross receipts and sales: $33,000 
Cost of goods sold: $11,200 
Other expenses: $9,500 
Other income (from investments): $1,100

Net earnings from self-employment = Gross receipts and sales – Cost of goods sold – Other expenses = $33,000 – $11,200 – $9,500 = $12,300 
However, we also have to subtract the one-half of self-employment tax, which is ($12,300 x 0.9235 x 0.153 = $1,374). 
Therefore, the net earnings from self-employment would be $12,300 – $1,374 = $10,926. Since this is a cash basis sole proprietor, we also need to consider the cash received during the year. Therefore, the other income of $1,100 has already been included in the gross receipts of $33,000. 
Hence, the net earnings from self-employment is $11,300, which is the closest option to our calculated value. Therefore, the correct answer is B.

Question 15

If a corporation has a short tax year, other than their first or last year of operation, explain how the corporation calculates the tax for the short period.

Accepted Answer

The answer of If a corporation has a short tax...

Question 16

Kate is an accrual basis, calendar-year taxpayer. On November 1, 2015, Kate leased out a building for $4,500 a month. On that day Kate received 7 months rental income on the building, a total of $31,500 ($4,500 × 7 months). How much income must Kate include on her 2015 tax return as a result of this transaction?

Accepted Answer

As an accrual basis taxpayer, Kate must recognize income when it is earned, not when it is received. Since she received 7 months of rent in advance, she must include the entire $31,500 in her 2015 income.

Question 17

Which of the following is not an acceptable method of accounting under the tax law?

Accepted Answer

The answer of Which of the following is not an...

Question 18

Most partnerships, S corporations, and personal service corporations owned by individuals choose a September 30 year-end so that they may defer 3 months of income.

Accepted Answer

The statement is not entirely correct. While some partnerships, S corporations, and personal service corporations may choose a September 30 year-end for tax purposes, it is not necessarily true that they do so in order to defer income. There may be other reasons why they choose this year-end, such as aligning with other partners or shareholders, or for financial reporting purposes.

Question 19

Vernon is a cash basis taxpayer with a calendar tax year. On October 1, 2015, Vernon entered into a lease to rent a building for use in his business at $3,000 a month. On that day Vernon paid 18 months rent on the building, a total of $54,000 ($3,000 × 18 months). How much may Vernon deduct for rent expense on his 2015 tax return?

Accepted Answer

The answer of Vernon is a cash basis taxpayer with...

Question 20

Choose the incorrect statement.

Accepted Answer

The incorrect statement is A) because for tax purposes, the IRS requires that the books and records be kept consistent with the tax year-end basis used for filing. This ensures that the financial information accurately reflects the taxpayer's income and deductions for the specific period being reported.

Quiz 7: Accounting Periods and Methods and Depreciation