Question 1

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

There is no evidence to suggest that most partnerships, S corporations, and personal service corporations owned by individuals choose a September 30 year-end to defer 3 months of income. Different businesses may have different reasons for choosing their year-end date.

Question 2

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

Corporations with a short tax year are required to annualize their taxable income in order to calculate tax for the short period. The tax liability is calculated on the total annualized income and then prorated back to the short period based on the number of months in the short period.

Question 3

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

Accepted Answer

C

Question 4

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 for a cash basis sole proprietor, we need to add up the total income and subtract the total expenses for the year.

Total Income = Gross receipts + Sales of inventory = $16,000 + $4,000 = $20,000
Total Expenses = Cost of goods sold + Other expenses = $8,000 + $900 = $8,900

Net Earnings from Self-Employment = Total Income - Total Expenses = $20,000 - $8,900 = $11,100

Therefore, the closest option is B ($11,300), which is just $200 more than the actual net earnings.

Question 5

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.

Question 6

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

Accepted Answer

Accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

Question 7

William, a cash-basis sole proprietor, had the following receipts and disbursements for the current year: ​
 For the current year, 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 8

Kate is an accrual basis, calendar-year taxpayer. On November 1, 2016, 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 2016 tax return as a result of this transaction?

Accepted Answer

Kate must include the entire $31,500 on her 2016 tax return because she is an accrual basis taxpayer.

Question 9

All S corporations must use the accrual basis of accounting.

Accepted Answer

S corporations have the option to choose between cash basis and accrual basis of accounting, as long as they meet certain criteria set by the IRS.

Question 10

Vernon is a cash basis taxpayer with a calendar tax year. On October 1, 2016, 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 2016 tax return?

Accepted Answer

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

Question 11

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 2016 tax return.

Accepted Answer

The answer of Amy is a calendar year taxpayer reporting...

Question 12

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 13

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 14

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 15

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 16

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

Accepted Answer

Expenses under the cash basis of accounting are deducted in the year they are paid, rather than when they are incurred.

Question 17

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

Accepted Answer

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

Question 18

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

Accepted Answer

"Annualizing" is a method by which a taxpayer calculates their income or deductions for a shorter period of time than a full year, but it does not usually decrease the amount of tax paid. It is used to determine whether or not a taxpayer is subject to certain penalties or limitations based on their income for a specific time period.

Question 19

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

Accepted Answer

Cash basis taxpayers must account for prepaid interest using the accrual method as it represents an expense that pertains to a future period that has not yet occurred.

Question 20

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, 2016 and ending December 31, 2016. Calculate the corporation's tax for the short period.

Accepted Answer

The answer of Quince Corporation changes its year-end from a...

Quiz 7: Accounting Periods and Methods and Depreciation

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.

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.

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

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?

Choose the incorrect statement.

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

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

All S corporations must use the accrual basis of accounting.

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 2016 tax return.

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?

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

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:

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

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

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

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

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

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, 2016 and ending December 31, 2016. Calculate the corporation's tax for the short period.

Quiz 7: Accounting Periods and Methods and Depreciation

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.

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.

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

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?

Choose the incorrect statement.

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

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

All S corporations must use the accrual basis of accounting.

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 2016 tax return.

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?

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

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:

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

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

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

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

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

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, 2016 and ending December 31, 2016. Calculate the corporation's tax for the short period.

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