Please answer the following as accurately as possible.
1. Which of the following statements is NOT correct?
A. Under an accrual method of accounting, you generally report income in the
year earned and deduct or capitalize expenses in the year incurred.
B. Under
an accrual method of accounting, you generally report receipt of an advance
payment for services to be performed in a later tax year as income in the year
you receive the payment.
C.
Under an accrual method of accounting, business expenses and interest owned to a
related person who uses the cash method of accounting are deductible when the
all-events test has been met.
D.
Under an accrual method of accounting, you can take a current deduction for
taxes when economic performance occurs.
2. Which of the following in NOT an acceptable inventory practice?
A. You claim a casualty or theft loss of inventory through the increase in the
cost of goods sold by properly reporting your opening and closing inventories.
B. To property value inventory at cost, reduce the invoice price of inventory by
a trade discount.
C.
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.
D. To properly value inventory at cost, include only the direct costs associated
with each item.
3. Mary is a calendar year, accrual basis taxpayer. She sold merchandise on December 30, 2008. She billed the customer in the first week on January, 2009. The billing was returned for insufficient postage and Mary sent a second bill in February, 2009. When should Mary include the sale in income?
A. January, 2009.
B.
March, 2009.
C.
December, 2008.
D.
February, 2009.
4. A partnership, S corporation or personal service corporation can elect to use a tax year other than its required tax year, if it:
A. Elects a year that meets the deferral period requirement.
B. Is
not a member of a tiered structure as defined by the regulations.
C.
Has not previously had an election in effect to use a tax year other than its
required tax year.
D. All
of the above.
5. Eric, a cash basis taxpayer, owned 25% of Watson, Inc. stock. Watson, Inc. files a calendar year U.S. Corporate Income Tax Return Form 1120 employing the accrual method of accounting. Eric loaned Watson, Inc. $100,000 at the beginning of 2007. The accrual interest on this loan was $5,000 as of December 31, 2007. Watson, Inc. paid Eric the $5,000 in January of 2008. How should Eric report the interest income and Watson, Inc. report the interest expense from this transaction?
A. Watson, Inc. reports the expense in 2007 and Eric reports the income in 2007.
B.
Watson, Inc. reports the expense in 2007 and Eric reports the income in 2008.
C.
Watson, Inc. reports the expense in 2008 and Eric reports the income in 2008.
D.
None of the above.
6. Mark is an accrual basis taxpayer. He shipped $500 worth of merchandise to Ralph on December 30, 2008. Mark sent Ralph an invoice January 2, 2009 that was payable in 30 days. Ralph mailed his check to Mark on February 2, 2009. Mark deposited the check on February 6, 2009. Mark received and reconciled his bank statement March 3, 2009. When does Mark record the $500 in income?
A. January 2, 2009 because that is when he invoiced Ralph.
B.
March 3, 2009 because that is when Mark verified that the $500 check had been
accepted as a deposit.
C.
December 30, 2008, the date when he shipped the merchandise to Ralph.
D.
February 6, 2009 because that is when Mark deposited the check from Ralph.
7. Which of the following items are generally included in inventory?
A. Goods for sale that someone else has consigned to you.
B.
Equipment used in your business to manufacture goods.
C.
Goods you have sent out on consignment for someone else to sell.
D.
Goods in transit to you for which title has not yet passed to you.
8. New ABC Partnership is organized in 2008 with three general partners. The partners include a corporation with a tax year ending on March 31 and a 60% interest in partnership capital and profits, and two individuals, each having a calendar tax year and a 20% interest in partnership capital and profits. The partnership's required tax year ends on:
A. March 31.
B.
September 30.
C.
October 31.
D. December
31.
9. Given the fact patterns below, which of the following entities may not use the cash method of accounting?
A. The Acme Partnership had gross receipts of $3,500,000 in 2008. Its gross
receipts for 2007 were $8,000,000 and its gross receipts for 2006 were
$3,000,000.
B. John
Jones manufactures and sells fans. His average annual gross receipts since 2004
are $975,000.
C.
Dallas Partnership has two partners in 2008 - Joe Dallas, an individual, and
Deer, Inc. a corporation. Dallas Partnership averaged annual gross receipts are
$6,500,000.
D. John
Gibb files his 2008 Form 1040 with an attached Schedule C reflecting $11,000,000
in gross receipts from selling real estate.
10. Under the "lower of cost or market" method, what is the value of the following items that should be included in closing inventory?
A. $800.
B.
$1,000.
C.
$1,050.
D.
$1,250.
11. Jim is a cash basis taxpayer and is an electrician. He received the following in 2008:
| * Schedule C income of | $25,000. |
| * Rental receipts of | $6,000. |
| * 2009 advanced lease payments received in December, 2008, | $1,000. |
| * Dividend income | $500. |
| * A 2007 personal bad debt recovery of | $1,000. |
| * $1,500 worth of electrical work in exchange for his friend installing a sprinkler system for him with a fair market value of | $1,500. |
How much does Jim have to report in his income for 2008?
A. $34,000.
B.
$35,000.
C.
$33,000.
D.
$31,000.
12. Abraham becomes an equal partner in the Kit, Kat and Kidd Partnership in 2008. In 2007, he filed his personal tax return on the calendar tax year basis. The partnership reports income and expenses on the fiscal tax year basis. How should Abraham report partnership income or loss distributed to him?
A. Abraham may choose a fiscal year to report income and expenses.
B.
Abraham must report income and expenses on the calendar year basis.
C.
Abraham may choose either a calendar tax year or fiscal tax year to report
income and expenses.
D.
Abraham may choose a fiscal tax year and later obtain IRS approval if he wishes
to change to a calendar tax year for reporting income and expenses.
13. The Kilometer Partnership sells computers and maintains its accounting system on the accrual basis. Kilometer sold and delivered a computer on December 29, 2007 and billed the customer $3,250 on January 7, 2008. Kilometer received the $3,250 payment on February 15, 2008. The check cleared on February 22, 2008. On which date will Kilometer recognize this income?
A.
January 7, 2008.
B. February 15, 2008.
C. December 29, 2007.
D.
February 22,
2008.
14. The following methods of accounting for inventory are considered acceptable, except:
A.
Cost.
B. First In First Out.
C. Last In First Out.
D.
Trade Discount Method.
15. Jeremiah, a cash basis taxpayer, is a salesman. He sold $100,000 of merchandise in March 2007. His commission is 2% of sales. In November 2007, he received $2,000 in commissions for those sales and an advance of $7,000 in commissions for future sales in 2008. What amount must John include in his income for 2008?
A.
$9,000.
B. $2,000.
C. $3,167.
D. $-0-.
16. Which of the following dates would not be considered the end of a tax year?
A.
The Last Friday in June.
B. September 30, 2008.
C. April 15, 2008.
D.
December 31, 2008.
17. Which of the following accounting methods in not an acceptable method of reporting income and expenses?
A. If an inventory in necessary to account for your income, you must use an
accrual method for purchases and sales. You can use the cash method for all
other items of income and expenses.
B. If you the cash method for figuring your income, you can use the accrual
method for figuring your expenses.
C. Any combination that includes the cash method is treated as the cash method.
D. You
can use different accounting methods for reporting business and personal items.
18. Phil and Don are equal partners in the Hilldale Company. Hilldale has a fiscal year ending on January 31. Phil and Don file their individual tax returns on a calendar year basis. For the tax year ending January 31, 2008, Hilldale had taxable income from the active conduct of its business of $100,000 of which $60,000 was earned in 2007. How much of their partnership taxable income should Phil and Don each include in computing their taxable income limit for the 2008 tax year?
A. $50,000.
B. $20,000.
C. $30,000.
D. $0.
19. The Foster & Graves Partnership values its inventory under lower of cost or market value method. Under this method, what is the value of the ending inventory?
| Item | Cost | Market |
| M | 150 | 175 |
| N | 175 | 180 |
| 0 | 220 | 200 |
A. $525.
B. $555.
C. $545.
D.
$520.
20. A taxpayer suffered an $11,000 loss of inventory when his cooler malfunctioned. He had no insurance for this type of loss. He shows this loss on his tax return by:
A. Taking a bad debt deduction of $22,000, the amount he would have sold the
inventory for.
B. Taking an ordinary loss on Form 4797 of $11,000.
C. Taking a business loss on his Schedule C as reflected by an increase of
$11,000 in cost of goods sold.
D. Taking a loss of $11,000 as a bad debt on Schedule D.
21.
