For purposes of determining gross income,which of the following is true?
A)A taxpayer who finds a wallet full of money is not required to recognize income because someone will eventually ask for the return of the money.
B)A mechanic completed repairs on an automobile during the year and collects money from the customer.The customer was not satisfied with the repairs and sued the mechanic for a refund.The mechanic cannot defer recognition of the income until the suit has been settled.
C)Embezzlement proceeds are not included in the embezzler's gross income because the embezzler has an obligation to repay the owner.
D)All of the above are true.
E)None of the above is true.

Question

Quizplus · Accepted Answer

Under the accrual basis of accounting, income is recognized when earned, regardless of when payment is received. Therefore, the mechanic must recognize the income from the repair work in the year it was completed, even if a lawsuit has been filed for a refund.

A is incorrect because finding money and not reporting it as income is considered tax evasion.

C is incorrect because embezzlement proceeds are considered income and should be included in gross income. The obligation to repay the owner does not affect the recognition of income.

D and E are incorrect because only choice B is true.

For Purposes of Determining Gross Income,which of the Following Is