Question : 31. Mark the correct answer. In cash basis accounting, for tax : 1313575

 

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

a. Income is recognized when it is actually or constructively received and expenses are recognized when they are actually or constructively incurred, regardless of when paid.

b. Income is recognized when it is earned regardless of when received and expenses are recognized when they are actually or constructively incurred.

c. Income is generally recognized when it is actually or constructively received and expenses are generally recognized when they are paid.

d. The cash basis is not allowed for businesses reported on Schedule C.

32. From the records of Tom, a cash basis sole proprietor, the following information was available: 

a. $10,900

b. $11,200

c. $11,400

d. $14,400

e. None of the above

33. Vernon is a cash basis taxpayer with a calendar tax year. On October 1, 2014, 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 2014 tax return?

a. $0

b. $12,000

c. $36,000

d. $54,000

e. None of the above

34. 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 2014 tax return.

a. On April 15, 2015, she makes a deductible contribution to an IRA for 2014.

b. She prepays half a year of interest in advance on her mortgage on the last day of 2014.

c. She pays all her outstanding invoices for standard business expenses in the last week of December.

d. She sends out a big bill to a customer on January 1, 2015, even though she did all of the work in December of 2014.

35. William, a cash-basis sole proprietor, had the following receipts and disbursements for 2014: 

a. $13,400

b. $14,000

c. $19,400

d. $20,000

e. None of the above

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

a. The accrual method

b. The cash method

c. The hybrid method

d. All of the above are acceptable

e. None of the above

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

a. A large almond farm with $40 million in gross receipts.

b. A continuing education provider with $2 million in gross receipts and 20 employees.

c. A nationwide law firm with $5.4 million in gross receipts.

d. A small sole proprietorship with $150,000 in gross receipts.

e. All of the above may use the cash method.

38. Kate is an accrual basis, calendar-year taxpayer. On November 1, 2014, 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 2014 tax return as a result of this transaction?

a. $4,500

b. $9,000

c. $31,500

d. $54,000

e. None of the above

39. Becky is a cash basis taxpayer with the following transactions during her calendar tax year: 

Cash basis revenue$54,000

Cash basis expenses, except rent$25,000

Rent expense (paid on December 1) for use of a building for 24 months$36,000

What is the amount of Becky’s taxable income from her business for this tax year?

a. $7,000 loss

b. $11,000

c. $27,500

d. $29,000

e. None of the above

40. Cork Oak Corporation purchased a heavy-duty truck (not considered a passenger automobile for purposes of the listed property and luxury automobile limitations) on May 1, 2014 for use in its business. The truck, with a cost basis of $24,000, has a 5-year estimated life. It also is 5-year recovery property. How much depreciation should be taken on the truck for the 2014 calendar tax year using the conventional (for financial accounting purposes) straight-line depreciation method?

a. $400

b. $2,400

c. $3,200

d. $4,800

e. None of the above

 

 

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