SU 1: Entity Types, Methods, and Periods

Erin earned $1,000 in interest in 2019. Erin withdrew $700 in 2020 and $300 in 2021. How much of the original $1,000 should Erin report as interest earned in 2021? $0 $300 $700 $1,000

$0.

Farmer John, a cash-basis taxpayer, bought $3,000 of cattle feed in Year 1 for use in Year 2. John's other farming expenses for Year 1 amounted to $2,000. In prior years, he also had prepaid expenses in excess of nonprepaid expenses. How much and when is the cattle feed deductible? Year 1 Year 2 $0 $3,000 $1,000 $2,000 $3,000 $0 $0 $1,000

$1,000 $2,000. 2000 other expenses x 50%= 1000 deduction for prepaid cattle feed.

Mr. S owns and operates an art studio. On December 1, Year 1, he received an advance payment of $12,000 from Ms. A to give her 12 painting lessons. The agreement stated that one lesson would be given in Year 1 and 11 lessons in Year 2. However, due to Ms. A's health, one lesson scheduled for July, Year 2, was not given until January, Year 3. S uses the calendar year and the accrual method of accounting. Assuming S elects to defer the advance payments, when must S report the income from painting lessons? $12,000 in Year 1. $12,000 in Year 2. $1,000 in Year 1, $10,000 in Year 2, and $1,000 in Year 3. $1,000 in Year 1, and $11,000 in Year 2.

$1,000 in Year 1, and $11,000 in Year 2.

Taxpayer A sold taxpayer B a bond at par value on June 30. The face value and coupon rate of the bond were $1,000 and 6%. Semiannual interest payments were made on March 31 and September 30. How much gross income is realized by taxpayer A on the sale? $15 $30 $60 $1,030

$15. 1000 x 0.06=$60. Paid in two equal installments of $30 and sold halfway through the year. So, 30 x (3 months/6 months)= $15.

Lake Corp., an accrual-basis, calendar-year corporation, had the following Year 1 receipts: Year 2 advanced rental payments with the lease ending in Year 3 $125,000 Lease cancellation payment from a 5-year lease tenant 50,000 Lake had no restrictions on the use of the advanced rental payments and renders no services. What amount of income should Lake report on its Year 1 tax return? $175,000 $0 $50,000 $125,000

$175,000. Rental income is included in gross income when recieved.

Dr. Berger reports on the cash basis. The following items pertain to Dr. Berger's medical practice in Year 2: Cash received from patients in Year 2 $200,000 Cash received in Year 2 from third-party reimbursers for services provided by Dr. Berger in Year 1 30,000 Salaries paid to employees in Year 2 20,000 Year-end Year 2 bonuses paid to employees in Year 3 1,000 Other expenses paid in Year 2 24,000 What is Dr. Berger's net business income for Year 2 from his medical practice? $156,000 $185,000 $186,000 $155,000

$186,000. The year 2 bonuses are deductable in year 3.

For Year 2, Mr. P, who uses the FIFO method of identifying inventory, had a beginning inventory of 3,500 units purchased in Year 1 consisting of the following: 1,000 purchased 4/20 @ $1.00 per unit 2,000 purchased 6/24 @ $2.00 per unit 500 purchased 7/24 @ $3.00 per unit During Year 2, Mr. P purchased the following units: 3,000 purchased 9/25 @ $4.00 per unit 1,000 purchased 12/1 @ $5.00 per unit During Year 2, P sold 2,300 units. What is the value of P's ending inventory on December 31, Year 2? $15,600 $22,100 $19,900 $13,300

$19,900. 700 x $2= $1,400+1,500 (500x3)+12,000(3,000x4)+ 5000(1,000x5)= 19,900. The units sold were the first 1,000 and 1,300 of the 2nd 2,000.

Pierre, a headwaiter, received tips totaling $2,000 in December of Year 1. On January 5, Year 2, Pierre reported this tip income to his employer in the required written statement. At what amount and in which year should this tip income be included in Pierre's gross income? $2,000 in Year 2. $167 in Year 1, and $1,833 in Year 2. $1,000 in Year 1, and $1,000 in Year 2. $2,000 in Year 1.

$2,000 in Year 2. Treated as paid when reported to his employer.

Mr. Y, who uses the LIFO method in computing his inventory, had 1,000 units left at the end of the current year. Based on the following information, what is the value of Y's inventory on December 31? Units Cost per Unit Market Value per Unit Opening inventory 500 $2.00 $3.00 Current-year purchases 9/25 1,500 $3.00 $3.00 11/15 1,000 $4.00 $5.00 $3,000 $4,000 $2,500 $5,000

$2,500. 500x$2= 1,000+1,500(500x$3)=2,500

What is the amount of income to be reported by Mr. X in Year 2 under the cash method of accounting for the following items? Check for $1,200 received January 4, Year 2, for services rendered in December, Year 1. Check for $900 received December 26, Year 2, for services rendered in October, Year 2; not cashed until January 5, Year 3. Dividend check for $500. Check was dated December 31, Year 2, but it is the practice of the issuing corporation to mail checks so they will not be received until January of the following year. Check for $600 received on April 1, Year 2, for interest on corporate bonds held for the period October 1, Year 1, through March 31, Year 2. Interest is paid semiannually on April 1 and October 1. Rental income of $800 for December, Year 2, received January 3, Year 3. $2,700 $3,500 $4,000 $1,800

$2,700. 1,200+600+900= 2,700. The dividends of 500 are not treated as received since it was the usual practice of the corp to delay them.

Alayna is a voice and singing coach. She is a calendar-year taxpayer using the accrual method of accounting. On November 2, 2020, she received $3,200 for a 2-year contract for 64 1-hour voice and singing lessons beginning on that date. The contract provided that Alayna give eight lessons in 2020 and 48 lessons in 2021, with the remaining lessons to be given in 2022. What is the amount that Alayna should report on her 2021 return? $0 $2,400 $2,800 $3,200

$2,800. 48/64= .75**3,200= 2,400+400(8/64= 0.125**3,200= 400)=2,800 Advance pmts can be defered for 1 year.

Candice operates a business giving art lessons at her studio. On October 3, 2020, she collected $800 from Robbie under a 1-year contract. The contract provided for 40 1-hour weekly lessons beginning that day. During 2020, Candice gave Robbie 10 lessons. In 2021, Robbie received 28 lessons, and in 2022, he received the remaining two. Candice uses a calendar tax year and the accrual method of accounting. She elects to defer the advance payments. When should she report the income from these lessons? 2020 2021 2022 $800 $0 $0 $200 $560 $40 $0 $800 $0 $200 $600 $0

$200 $600 $0.

Ms. Dee owns and operates a dance studio. On December 1, 2020, she received an advance payment of $2,400 from Angie to give her 12 dance lessons. The agreement stated that one lesson would be given in 2020 and 11 lessons in 2021. However, due to Angie's health, one lesson scheduled for June 2021 was postponed until January 2022. Ms. Dee uses the calendar year and the accrual method of accounting. Assuming Dee elects to defer the advance payments, when must she include the payment received from Angie in income? $200 in 2020, $2,000 in 2021, and $200 in 2022. $2,400 in 2020. $2,400 in 2021. $200 in 2020 and $2,200 in 2021.

$200 in 2020 and $2,200 in 2021.

M, an accrual-method taxpayer using the calendar year, had the following transactions during Year 1: Recovery of an account receivable written off and deducted in a prior year, which did not reduce income subject to tax $ 5,000 Sales to a customer who is directed to transmit the payment to M's brother 3,500 Amounts received in settlement of a breach of contract suit 22,500 Goods shipped on consignment December 15, Year 1, and sold by M's agent on January 10, Year 2 13,000 What amount must M include in gross income for Year 1? $8,500 $27,500 $26,000 $31,000

$26,000. 3,500+22,500= 26,000.

John is a cash-basis taxpayer. He received the following items of income in December 2021: The loan on his truck was forgiven because he performed accounting work for the dealer. He owed $2,000 at the time. A retainer of $500 from a new client to guarantee that his services would be available in February when the client would need help preparing financial statements. The $800 for work he completed in November of 2020. How much of this income must John include on his 2021 tax return? $2,500 $3,300 $1,300 $500

$3,300. 800+2000+500= 3,300.

Williams Manufacturing has the following account information at year end. Compute ending inventory using the following information: Physical inventory at 12/31 at cost $300,000 Reserve for estimated depreciation of inventory 15,000 Stock shipped FOB destination 12/30 5,000 Raw materials ordered 12/20, invoiced and payable (not yet received) 10,000 $310,000 $315,000 $300,000 $305,000

$315,000. 300,000+5,000(not yet delivered)+10,000(title passed)=315,000. the 15,000 in reserve does not count towards inventory.

For the first 6 months of 2021, Mr. Heston, who files jointly with his wife, had adjusted gross income of $32,800 and itemized deductions of $14,100. Mr. Heston changed his accounting period and is required to file a short period return for this 6-month period. What is Mr. Heston's annualized income? $18,700 $37,400 $7,700 $53,050

$37,400. 32,800-14,100= 18,700x12/6= 37,400

Dave operates a home improvement business as a sole proprietor. On December 31 of the current year, he received a delivery of plasterboard and gave the deliveryman a check for $300. Later that day, he bought paint, brushes, and some power tools for use in his business. He bought the paint and brushes for $125 from the Bright Paint Store and charged them on a bank credit card. He bought the tools for $150 from Power Hardware Company and charged them on his Power Hardware credit card. What is the amount of these expenditures that Dave can deduct as business expense in the current year? $575 $275 $425 $300

$425. Until credit card bill is paid, does not count towards expenses.

Mr. Jones has an adjusted gross income of $40,000 and itemized deductions of $16,000 for the 6-month period from January 1 through June 30, 2021. Mr. Jones received an approved change to his tax year, and he must file a short tax year return. What is the taxable income amount that Mr. Jones must use to compute his short year return? $24,000 $40,000 $28,000 $48,000

$48,000. 40-16= 24,000. 24,000**12/6= 48,000

Dowd, a cash-basis engineering consultant, wanted to defer income to next year. A client who was in Dowd's office on December 31 of the current year offered to pay his $2,000 bill immediately, but Dowd told him to pay in January. A check for $5,000 from another client arrived in the mail on December 29, and Dowd told his office manager not to deposit it until January. Dowd also told his office manager not to send a client a bill for $3,000 for services performed in the current year until January of next year. How much income from these transactions should Dowd report in the current year? $7,000 $0 $5,000 $8,000

$7,000. 5,000+2,000= 7,000. Dowd must recognize the $2,000 of income from the client who offered to pay the bill.

Under the lower-of-cost-or-market method, what is the value of the following items that should be included in closing inventory? Item Cost Market X $450 $700 Y $250 $100 Z $300 $250 Total $1,000 $1,050 $1,050 $1,250 $1,000 $800

$800. 450+100+250= 800.

In September 2021, Charlie, a self-employed lawyer, performed legal services for a client that has a men's clothing store. In payment for his services, Charlie received store credit of $3,500 in 2021. Charlie uses $1,500 of his store credit in 2021 and the balance in 2022. How should Charlie include the income? -2021 $3,500 2022 $0 -2021 $1,500 2022 $2,000 -2021 $0 2022 $3,500 -None of the answers are correct.

-2021 $3,500 2022 $0.

Which of the following statements regarding accounting methods is false? -If inventories are necessary, the accrual method is used for sales and purchases. -A combination (hybrid) method is not an acceptable method of accounting. -A change from the accrual to the cash method of accounting requires consent from the IRS. -Under the cash method of accounting, gross income includes all items of income actually or constructively received during the year.

-A combination (hybrid) method is not an acceptable method of accounting.

All of the following tax years are acceptable tax years EXCEPT -A fiscal year (other than a 52- to 53-week tax year) that ends on any day of the month other than the last day. -52 to 53 week tax year. -A short tax year that occurred because a business was not in existence for an entire year. -A short tax year that occurred because a business had a change in accounting period.

-A fiscal year (other than a 52- to 53-week tax year) that ends on any day of the month other than the last day.

Which of the following is NOT considered "constructive receipt" of income? -Mr. W received a check on Dec. 30, Year 1, for services rendered but was unable to make a deposit until Jan. 4, Year 2. -A payment on a sale of real property was placed in escrow on Dec. 15, Year 1, but was not received by Ms. B until Jan 10, Year 2, when the transaction closed. -Ms. K was informed her check for services rendered was available on Dec. 15, Year 1, but she waited until Jan. 15, Year 2 to pick up the check. -Earned income of Mr. D was received by his agent on Dec. 29, Year 1 but was not received by D until Jan. 5, Year 2.

-A payment on a sale of real property was placed in escrow on Dec. 15, Year 1, but was not received by Ms. B until Jan 10, Year 2, when the transaction closed.

Which of the following statements about the cash method of accounting is true? -An employee who receives $10 in tips a month working for an employer by the 15th day of the following month. -A promise to pay, without more, is not payment. -Prepaid rent is deducted in whole when paid. -Expenses paid in advance can be deducted in full in the year in which they are paid.

-A promise to pay, without more, is not payment.

Generally, a substantial business inventory requires use of which method of accounting? -Accrual. -None of these methods are correct. -Cash. -Hybrid.

-Accrual.

All of the following changes in method of accounting require the consent of the Commissioner of Internal Revenue EXCEPT -Change in the method or basis used to value inventories. -Change from the cash method to the accrual method. -Change from the cash or accrual method to a long-term contract method. -Adoption of a 15-year amortization period for purchased intangible assets that have previously not been amortized.

-Adoption of a 15-year amortization period for purchased intangible assets that have previously not been amortized.

Permissible methods of accounting for a taxpayer's taxable income include all of the following EXCEPT -All other answers are permissible methods of accounting. -A hybrid method. -The cash method. -The accrual method.

-All other answers are permissible methods of accounting.

All of the following are acceptable in valuing inventory for federal income tax purposes EXCEPT -Allocating indirect production costs to inventory by means of the manufacturing burden rate method. -Figuring cost of goods sold on hand by use of perpetual inventories when the account is charged with the cost of goods purchased and credited with value of goods sold. -Allocation variable indirect production costs to cost of goods produced while treating fixed indirect production costs as currently deductable period costs. -Identifying direct material costs with particular units or groups of the product.

-Allocation variable indirect production costs to cost of goods produced while treating fixed indirect production costs as currently deductable period costs.

Which of the following items is NOT a change in the method of accounting requiring the consent of the IRS? -Change in the method or basis used to value inventories. -Change in the method of figuring depreciation (except certain changes to the straight-line method). -Change from the cash method to accrual method or vice versa. -An adjustment in the useful life of a depreciable asset.

-An adjustment in the useful life of a depreciable asset.

Which of the following changes in the method of accounting does NOT require the consent of the Internal Revenue Service? -A change in the method or basis used to value inventories. -An adjustment in the useful life of a depricable asset not subject to ACRS or MACRS property. -A change from the cash method to the accrual method or vice versa. -A change in the method of figuring depreciation.

-An adjustment in the useful life of a depricable asset not subject to ACRS or MACRS property.

Which of the following dates would NOT be considered the end of a tax year? -The last Friday in June. -September 30, 2021. -April 15, 2021. -December 31, 2021.

-April 15, 2021.

LLCs may be an attractive small business alternative as opposed to an S corporation because LLCs offer the following advantage(s) not available in S corporations: -Flexibility in types of owners and ownership interests. -Pass-through taxation -Both inclusion of entity-level liabilities in tax basis and flexibility in types of owners and ownership interests. -In conclusion of entity-level liabilities in tax basis.

-Both inclusion of entity-level liabilities in tax basis and flexibility in types of owners and ownership interests.

Which of the following is the most important principle in valuing inventories? -Clear reflection of income. -Generally accepted accounting principles. -Full absorption costing. -Lower of cost or market.

-Clear reflection of income.

Which of the following statements is incorrect with respect to changes in accounting methods requiring the consent of the IRS? -Consent is required to use different methods of accounting for each separate business that you operate. -Consent is necessary when you are required to make a change from the cash to the accrual method of accounting. -Consent is required when you change the method of figuring depreciation (except certain changes to straight line). -Consent is required when a change in method or basis used to value inventory is made.

-Consent is required to use different methods of accounting for each separate business that you operate.

An item is included in gross income when a person has an unqualified right to immediate possession under the doctrine of -Strict liability. -Stare decisis. -Consideration. -Constructive receipt.

-Constructive receipt.

Which of the following inventory practices is NOT acceptable for tax purposes? -Specific-cost-identification method of inventory valuation. -Deducting a reserve for price changes in the value of the inventory. -The LIFO method of identifying inventory. -Lower-of-cost-or-market method of valuing inventory.

-Deducting a reserve for price changes in the value of the inventory.

A sole proprietorship with no employees must obtain an employers' identification number for federal tax purposes if required to file which of the following returns? -Alcohol. -Tobacco. -Excise. -Excise, alcohol, or tobacco.

-Excise, alcohol, or tobacco.

A cash-basis taxpayer should report gross income -For the year in which income is either actually or constructively received, whether in cash or in property. -For the year in which income is either actually or constructively received in cash only. -Only for the year in which income is actually received in cash. -Only for the year in which income is actually received whether in cash or in property.

-For the year in which income is either actually or constructively received, whether in cash or in property.

Which of the following items are generally included in inventory? -Equipment used in your business to manufacture goods. -Goods for sale that someone else has consigned to you. -Goods in transit to you for which title has not yet passed to you. -Goods you have sent out on consignment for someone else to sell.

-Goods you have sent out on consignment for someone else to sell.

In the current year, Mr. A started a business that rents, sells, and repairs video recorders. Mr. A uses the accrual method of accounting and the calendar year as his tax year. The current-year business receipts included payments for 1-year service contracts and payments for prepaid rent on video recorders. The video recorders are offered for sale without service contracts in the normal course of business. Which of the following statements regarding Mr. A's reporting of gross income is true? -He may include the payments for prepaid rent and 1-year service contracts in gross income as he earns them over the periods of the contracts. -He must include the payments for prepaid rent and for 1-year service contracts in gross income for the current year. -He must include the payments for 1-year service contracts in gross income for the current year but may include the payments for prepaid rent over the periods of the rental contracts. -He must include the payments for prepaid rent in gross income for the current year but may include the payments for 1-year service contracts as he earns them over the periods of the contracts.

-He must include the payments for prepaid rent in gross income for the current year but may include the payments for 1-year service contracts as he earns them over the periods of the contracts. All of Mr. A's prepaid rent must be recognized when received.

Which of the following statements with respect to methods of valuing or identifying items in inventory is false? -Under the Lower-of-cost-or-market method, a business compares the market value of each individual item on hand at the inventory date with its cost and uses the lower value as its inventory value. -You may adapt the LIFO method by filing either form 970, application to us LIFO inventory method, or a statement that has all the information required in form 970. -Deducting a reserve for price changes or an estimated amount for depreciation in the value of your inventory is not a recognized inventory practice for tax purposes. -If a taxpayer uses the specific identification (Cost) method or the lower-of-cost-or-market methods anything (s)he wishes, as long as the method (s)he chooses is used for a complete tax year.

-If a taxpayer uses the specific identification (Cost) method or the lower-of-cost-or-market methods anything (s)he wishes, as long as the method (s)he chooses is used for a complete tax year.

Which of the following statements with respect to methods of valuing or identifying items in inventory is false? -Under the lower-of-cost-or-market method, a business compares the market value of each individual item on hand at the inventory date with its cost and uses the lower value as its inventory value. -If a taxpayer uses the specific-identification (cost) method or the lower-of-cost-or-market method to value inventory, (s)he may switch between the cost and the lower-of-cost-or-market methods anytime (s)he wishes, as long as the method (s)he chooses is used for a complete tax year. -You may adopt the LIFO method by filing either Form 970, Application to Use LIFO Inventory Method, or a statement that has all the information required in Form 970. -Deducting a reserve for price changes or an estimated amount for depreciation in the value of your inventory is not a recognized inventory practice for tax purposes.

-If a taxpayer uses the specific-identification (cost) method or the lower-of-cost-or-market method to value inventory, (s)he may switch between the cost and the lower-of-cost-or-market methods anytime (s)he wishes, as long as the method (s)he chooses is used for a complete tax year. Once a method is chosen, it may not be changed to another method without consent from the IRS.

Linda is NOT deemed to have constructively received income in 2021 in which of the following situations? -In 2014, Linda receives payments subject to substantial restrictions. On December 27, 2014, the restrictions lapsed, and on January 18, 2015, Linda withdrew the funds. -Linda's compensation payment is automatically deposited into her checking account on December 28, 2014. However, Linda does not draw any of the funds from her account until February 3, 2015. -In 2014, a third party promises to pay all of her debts to Linda in the near future. On January 2, 2015, Linda receives all of the payments due. -Linda receives a check for her services on December 20, 2014, but waits until January 5, 2015, to cash the check.

-In 2014, Linda receives payments subject to substantial restrictions. On December 27, 2014, the restrictions lapsed, and on January 18, 2015, Linda withdrew the funds.

Mr. and Mrs. Hammer own a retail hardware store. Which of the following items should they include in their December 31 current year inventory? -Envelopes and stationery used in the office. -A lawnmower that was sold to, and paid for by, a customer and has not yet been picked up. -In-transit cash on delivery (C.O.D.) shipment of nails to a customer. -Goods consigned to Mr. and Mrs. Hammer.

-In-transit cash on delivery (C.O.D.) shipment of nails to a customer.

In order to adopt a fiscal tax year on its first federal income tax return, the taxpayer must -Get IRS approval. -File a short-period return. -Attach a completed Form 1128 to his or her fiscal-year-basis income tax return. -Maintain books and records and report income and expenses using that tax year.

-Maintain books and records and report income and expenses using that tax year.

Which of the following inventory practices is recognized for tax purposes? -Deducting from inventory as a reserve for price changes. -Separating indirect production cost into fixed and variable production cost into fixed and variable costs to cost of good produced while treating fixed costs as period costs that are currently deductible. -Treating all or substantially all indirect production costs as period costs that are currently deductible. -None of the answers are correct.

-None of the answers are correct.

A taxpayer is a merchant who has purchased inventory items. He withdrew some of these items for personal use. He must -Increase his sales by the cost of the items withdrawn. -Reduce the cost of purchases by the cost of the personal-use items. -Reduce the cost of purchases by the fair market value of the personal-use items. -Reduce beginning inventory by the cost of the personal-use items.

-Reduce the cost of purchases by the cost of the personal-use items.

Which of the following methods is NOT used to identify items in inventory? -Rolling average. -LIFO. -Specific. -FIFO.

-Rolling average.

In which of the following situations does a change in accounting method require consent of the IRS? -Switching from declining-balance depreciation to straight-line. -Making an adjustment in the useful life of certain assets. -Switching to LIFO inventory. -Correcting an error in computing tax.

-Switching to LIFO inventory.

Which of the following is an advantage of forming a limited liability company (LLC) as opposed to a partnership? -The entity may have any number of owners. -The entity may make disproportionate allocations and distributions to members. -The entity may avoid taxation. -The owner may participate in management while limiting personal liability

-The owner may participate in management while limiting personal liability

Which of the following is an advantage of forming a limited liability company (LLC) as opposed to a partnership? -The entity may avoid taxation. -The entity may have any number of owners. -The owner may participate in management while limiting personal liability. -The entity may make disproportionate allocations and distributions to members.

-The owner may participate in management while limiting personal liability.

Which of the following is NOT an acceptable inventory practice? -To properly value inventory at cost, include only the direct costs associated with each item. -You claim a casualty or theft loss of inventory through the increase in the cost of goods sold by properly reporting you opening and closing inventories. -To properly value inventory at cost, reduce the invoice price of inventory by a trade discount. -Under the lower-of-cost-or-market method, compare the market value of each item on hand on the inventory date with its cost and use the lower of the two as its inventory value.

-To properly value inventory at cost, include only the direct costs associated with each item. Allocable costs are not deductable and must be capitalized.

Which of the following statements is NOT correct? -Under an accrual method of accounting, business expenses and interest owed to a related person who uses the cash method of accounting are deductable when the all-events test has been met. -Under an accrual method of accounting, you can take a current deduction for taxes when economic performance occurs. -Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. -Under an accrual method of accounting, You generally report receipt of an advance payment for services to be preformed over 3 or more years as income in the year you receive the payment.

-Under an accrual method of accounting, business expenses and interest owed to a related person who uses the cash method of accounting are deductable when the all-events test has been met.

In figuring taxable income, which of the following is NOT an acceptable method of valuing inventories? -Specific-cost-identification method (cost method). -Using a constant price for so-called normal quantity of materials or goods in stock. -Lower-of-cost-or-market method. -Retail method used with the FIFO method.

-Using a constant price for so-called normal quantity of materials or goods in stock.

Generally, all of the following entities may use the cash method of accounting EXCEPT -A family farming corporation with gross receipts of $26 million or less. -An entity with no inventories and average annual gross receipts of $26 million or less. -A qualified personal service corporation. -A corporation that has long-term contracts.

A corporation that has long-term contracts.

Generally, a substantial business inventory requires use of which method of accounting? Cash. Hybrid. Accrual. None of the answers are correct.

Accrual.

You can compute your taxable income under which of the following accounting methods? Special method for certain items. Accrual method. Hybrid method. All of the answers are correct.

All of the answers are correct.

LLCs may be an attractive small business alternative as opposed to an S corporation because LLCs offer the following advantage(s) not available in S corporations: -Inclusion of entity-level liabilities in tax basis. -Pass-through taxation. -Flexibility in types of owners and ownership interests. -Both inclusion of entity-level liabilities in tax basis and flexibility in types of owners and ownership interests.

Both inclusion of entity-level liabilities in tax basis and flexibility in types of owners and ownership interests.

The Kilometer Partnership sells computers and maintains its accounting system on the accrual basis. Kilometer sold and delivered a computer on December 29, 2020, and billed the customer $3,250 on January 7, 2021. Kilometer received the $3,250 payment on February 15, 2021. The check cleared on February 22, 2021. On which date will Kilometer recognize this income? -January 7, 2021. -February 15, 2021. -December 29, 2020. -February 22, 2021.

December 29, 2020. Kilometer Partnership recognizes the sale of the computer on December 29, 2020. This is the date of the sale and delivery of the product. Both the right to receive income and a reasonably accurate estimate of the amount to be received arise on this date.

Mark is an accrual-method taxpayer. He shipped $500 worth of merchandise to Ralph on December 30, 2021. Mark sent Ralph an invoice January 2, 2022, that was payable in 30 days. Ralph mailed his check to Mark on February 2, 2022. Mark deposited the check on February 6, 2022. Mark received and reconciled his bank statement March 3, 2022. When does Mark record the $500 in income? -January 2, 2022, because that is when he invoiced Ralph. -March 3, 2022, because that is when Mark verified that the $500 check had been accepted as a deposit. -December 30, 2021, the date when he shipped the merchandise to Ralph. -February 6, 2022, because that is when Mark deposited the check from Ralph.

December 30, 2021, the date when he shipped the merchandise to Ralph.

ABC, a C corporation, ends its tax year on October 30. When must ABC's income tax return be filed for the year ending October 30, 2021? Feb. 15, 2022 Jan. 15, 2022 Apr. 15 2022 Mar. 15 2022

Feb. 15, 2022. It must be the 15 day of the fourth month after the close of the tax year.

Which form is used to change from one required tax year to another? Form 1120 (Schedule H). Form 1128. Form 8716. Form 8752.

Form 1128.

Which form is used to change from one required tax year to another? Form 8716. Form 1128. Form 1120 (Sch. H) Form 8752.

Form 1128.

Under which circumstance is an entity required to apply for a new employer identification number? -Proprietorship that incorporates. -Business name change. -Electing or revoking S corporation status. -50% change of interest in partnership within 12 months.

Proprietorship that incorporates.

Which form of business entity is NOT a legal entity separate and apart from its owner? S corporation. Partnership. Corporation. Sole proprietorship.

Sole proprietorship.

The following methods of accounting for inventory are considered acceptable EXCEPT Last-in, first-out. First-in, first-out. Trade discount method. Cost.

Trade discount method.

A taxpayer owns two businesses. Business A uses inventory. Business B has no inventory. Which of the following is NOT acceptable for this taxpayer? -Use of the accrual method for Business A and cash method for Business B. -Use of the accrual method for both businesses. -Use of the cash method for Business A's inventory purchases. -Use of the cash method for Business A's office expenses.

Use of the cash method for Business A's inventory purchases.