Question 1

Carol attends State U.and received a $10,000 scholarship for her senior year that began in September,year 1.Up to the time of her graduation in May,year 2,Carol had paid the following expenses for the two semesters: 1^st semester: $3,000 tuition; $1,550 room and board in a dormitory; $400 for books and fees. 2^nd semester: $3,000 tuition; $1,700 living expenses in an apartment; $250 for books and fees. She used the remaining money from the scholarship to purchase clothes for job hunting in April,year 2. Does Carol have any income as a result of the scholarship? If yes,how much is her income and in what years would it be included in income?

Accepted Answer

The answer of Carol attends State U.and received a $10,000...

Question 2

All of the following are allowable tax years except:
A)The last Friday of July
B)December 31
C)The Sunday closest to March 1
D)August 31

Accepted Answer

The answer of All of the following are allowable tax...

Question 3

Which of the following statements explain permanent differences between tax and financial accounting? i.Income is recognized in one period for tax and in another period for financial accounting
Ii)Income is recognized for accounting but not for tax purposes.
Iii)Expenses not deductible for tax purposes are deductible for financial accounting.
Iv)An expense is deducted currently for tax but in a later period for financial accounting.
A)ii.only
B)i.and ii.
C)i.and iv.
D)ii.and iii.

Accepted Answer

Permanent differences between tax and financial accounting arise when income or expenses are recognized in one but not the other, such as when income is recognized for accounting but not for tax purposes (ii), or when expenses are deductible for financial accounting but not for tax purposes (iii).

Question 4

Which of the following is an application of the wherewithal-to-pay concept?
A)Percentage-of-completion
B)Hybrid method of accounting
C)Installment method
D)Accrual method of accounting

Accepted Answer

The wherewithal-to-pay concept is used in the installment method of accounting. Under this method, revenue is recognized as cash is received from the customer, taking into consideration the customer's ability or wherewithal to pay for the product or service over time.

Question 5

Shelly is in the 25 percent tax bracket and expects to remain in that bracket in the future.She has $100,000 to invest for 5 years and has the following alternatives: (a)corporate bonds paying 7 percent; (b)tax-exempt bonds paying 4.5 percent; (c)land that is expected to increase in value to $140,000 in 5 years.Interest on either the corporate bonds or the tax-exempt bonds can be reinvested at 7 percent interest.Any gain on the sale of the land will be eligible for the 15 percent long-term capital gain tax rate.Calculate the after-tax return for each investment.Which investment do you recommend she choose?

Accepted Answer

The answer of Shelly is in the 25 percent tax...

Question 6

James ran a stop sign and smashed into Mary's automobile.Mary was seriously injured and sued James and his insurance company.She was awarded the following:
-12,000 for lost income
-$60,000 for hospital costs
-$10,000 for therapy to overcome her fear of driving
-$100,000 for the loss of function in her right hand
-$50,000 punitive damages
Mary's actual hospital costs were $62,000 and her therapy cost $7,000.How much must Mary include in income?

Accepted Answer

The answer of James ran a stop sign and smashed...

Question 7

Wilma divorced Barney last year.This year she received the title to their boat that cost $45,000 and is now worth $55,000.Barney paid Wilma $1,500 per month,$500 for alimony and $1,000 for support of their two children.Wilma owed $60,000 to the bank for a loan on a failed business.To satisfy the debt,she transferred title of the boat to the bank and paid an additional $5,000.What are the tax consequences of these transactions for Barney and Wilma?

Accepted Answer

The answer of Wilma divorced Barney last year.This year she...

Question 8

Which of the following explain why it is important to determine the period in which income is recognized?
A)Marginal tax rates may be different in different periods.
B)Tax laws may change
C)The time value of money
D)All of the above are explanations

Accepted Answer

All of the above are valid explanations. Marginal tax rates may differ in different periods and tax laws may change, affecting the amount of taxes owed. Additionally, the time value of money means that income recognized earlier is more valuable than income recognized later, as it can be invested or used to pay down debt earlier.

Question 9

Gogo-a-gogo,a manufacturer of dance shoes located in France,is a 90% owned subsidiary of Dance-Togs,Incorporated,a calendar-year corporation.In 2014 it earned a total of $400,000 on its manufacturing operations in France and paid $120,000 in French income taxes on that income.It distributed a total of $60,000 to its parent corporation during the year.How much of Gogo-a-gogo's income must Dance-Togs include in its income for 2015?

Accepted Answer

The answer of Gogo-a-gogo,a manufacturer of dance shoes located in...

Question 10

Colin and Coleen divorced in the current year.Colin is willing to pay Coleen $20,000 of alimony for five years so that she can return to school and obtain a degree.Coleen has stated that she needs no less than $20,000 after taxes and will not accept Colin's offer of alimony.Coleen is in the 15 percent tax bracket and Colin is in the 33 percent tax bracket.How much alimony must Coleen receive to have $20,000 after taxes? What is Colin's after-tax cost of this alimony payment?

Accepted Answer

The answer of Colin and Coleen divorced in the current...

Question 11

John and Ethel,a married couple,receive $21,000 in Social Security benefits in 2015.They also receive $82,000 in taxable pension payments and $6,000 in municipal bond interest.What is their adjusted gross income for 2015?

Accepted Answer

The answer of John and Ethel,a married couple,receive $21,000 in...

Question 12

Howard can invest $50,000 in land that is expected to increase in value by 8 percent per year.Alternatively he could invest in corporate bonds paying 8 percent interest,with interest reinvested at 8 percent.Howard's capital gains tax rate is 15 percent and his marginal tax rate is 28 percent.Which investment should Howard make and what is the advantage of this alternative over the other investment if he plans to sell the land in five years.

Accepted Answer

The answer of Howard can invest $50,000 in land that...

Question 13

All of the following are acceptable methods of accounting for revenue and expenses for tax purposes except:
A)Accrual method
B)Percentage-of-completion
C)Hybrid method
D)All are acceptable methods

Accepted Answer

All of the methods listed (accrual, percentage-of-completion, and hybrid) are acceptable methods of accounting for revenue and expenses for tax purposes. The choice of method may depend on various factors such as the nature of the business, size of the business, and reporting requirements.

Question 14

Teddy,a single man,has $5,000 of taxable dividends,$3,000 of interest income from State of Oregon bonds,a $5,000 long-term capital gain,and $9,000 of Social Security benefits.What is Teddy's adjusted gross income?

Accepted Answer

The answer of Teddy,a single man,has $5,000 of taxable dividends,$3,000...

Question 15

Which type of book/tax differences are accounted for as deferred tax assets or deferred tax liabilities?
A)Timing differences
B)Permanent differences
C)All deferrals for a cash basis taxpayer
D)All of the above

Accepted Answer

Deferred tax assets and liabilities are created due to timing differences between book and tax income. Permanent differences are not accounted for as deferred tax assets or liabilities because they do not reverse in the future. Deferrals for a cash basis taxpayer are not relevant for deferred taxes because cash basis taxpayers do not recognize income or expenses until cash is received or paid, respectively. Therefore, only timing differences are accounted for as deferred tax assets or liabilities.

Question 16

Billy's father owns a controlling interest in Big Top Corporation.Billy needed $20,000 to pay a gambling debt and the corporation made a loan to Billy at no interest for the $20,000.This transaction can be characterized as:
A)A gift loan to Billy
B)An employment-related loan
C)An arm's length loan
D)A disguised dividend to the father

Accepted Answer

This transaction can be seen as a disguised dividend because Billy is the son of the controlling interest owner and he received a loan with no interest. It is possible that this loan will not be repaid, and therefore, it can be seen as a transfer of wealth from the corporation to the father via his son.

Question 17

Naomi was the beneficiary of a $100,000 insurance policy on her mother who died in January 2015.It took the insurance company several months to make the payment so she received $100,206 in May 2015.She was a joint tenant on a bank account with her mother.She inherited the $14,000 in the account that had all been deposited by her mother.After a long battle with her medical insurance company,Naomi received a $7,000 reimbursement in 2015 for an operation that she underwent in 2013.As a result of her high medical expenses,she was able to claim $7,000 in itemized deductions on her 2013 tax return rather than taking the $6,100 standard deduction.What are Naomi's taxable income items from these events for 2015?

Accepted Answer

The answer of Naomi was the beneficiary of a $100,000...

Question 18

Which of the following doctrines does not affect the timing of income recognition for a cash basis taxpayer?
A)Installment method
B)All events test
C)Wherewithal-to-pay
D)Constructive receipt

Accepted Answer

The all events test is primarily relevant for accrual basis taxpayers, not cash basis taxpayers. It determines when all the events have occurred that fix the right to receive income and the amount can be determined with reasonable accuracy. Cash basis taxpayers recognize income when it is actually or constructively received.

Question 19

Clayton Corporation receives $100,000 to provide garbage service for the next four years:
A)Clayton must recognize income over the four years for both tax and accounting purposes.
B)Clayton can include the entire $100,000 in income currently for both tax and accounting purposes.
C)The $100,000 creates a permanent difference between tax and accounting income.
D)The $100,000 creates a timing difference between tax and accounting income.

Accepted Answer

The $100,000 creates a timing difference between tax and accounting income because it is received upfront but needs to be recognized over the next four years for accounting purposes. This means that while the entire $100,000 can be included in income currently for tax purposes, it cannot be included for accounting purposes. Therefore, this creates a timing difference between the two methods.

Question 20

In 1997,Carol purchased a single life annuity for $150,000 that would pay her $15,000 per year for life beginning in 2009.Carol's life expectancy from 2009 forward on which the payments were based was 20 years.
a.How much would Carol include in income if she is still receiving payments in 2029?
b.If Carol dies in 2016 after receiving that year's payment,what is the unrecovered investment remaining?
c.How is the unrecovered investment treated for tax purposes?

Accepted Answer

The answer of In 1997,Carol purchased a single life annuity...

Quiz 3: Determining Gross Income

All of the following are allowable tax years except:

Which of the following is an application of the wherewithal-to-pay concept?

Which of the following explain why it is important to determine the period in which income is recognized?

John and Ethel,a married couple,receive $21,000 in Social Security benefits in 2015.They also receive $82,000 in taxable pension payments and $6,000 in municipal bond interest.What is their adjusted gross income for 2015?

All of the following are acceptable methods of accounting for revenue and expenses for tax purposes except:

Teddy,a single man,has $5,000 of taxable dividends,$3,000 of interest income from State of Oregon bonds,a $5,000 long-term capital gain,and $9,000 of Social Security benefits.What is Teddy's adjusted gross income?

Which type of book/tax differences are accounted for as deferred tax assets or deferred tax liabilities?

Billy's father owns a controlling interest in Big Top Corporation.Billy needed $20,000 to pay a gambling debt and the corporation made a loan to Billy at no interest for the $20,000.This transaction can be characterized as:

Which of the following doctrines does not affect the timing of income recognition for a cash basis taxpayer?

Clayton Corporation receives $100,000 to provide garbage service for the next four years: