Accounting for Income Taxes
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Course Introduction
Accounting for Income Taxes explores the principles and procedures involved in recognizing, measuring, and disclosing income tax obligations within financial statements. This course covers the differences between accounting and taxable income, the calculation and presentation of current and deferred tax assets and liabilities, and the implications of temporary and permanent differences. Students will learn to apply relevant accounting standards, such as ASC 740 or IAS 12, to assess tax positions, recognize valuation allowances, and analyze the impact of tax laws on corporate financial reporting. Emphasis is placed on interpreting disclosures, managing uncertain tax positions, and understanding the strategic role of tax planning in business decisions.
Recommended Textbook Concepts in Federal Taxation 2019 26th Edition Kevin E. Murphy
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16 Chapters
2071 Verified Questions
2071 Flashcards
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Chapter 1: Federal Income Taxation-An Overview
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Sample Questions
Q1) Marie earns $80,000 as a sales manager for Household Books. How much Social Security and medicare tax does Marie have to pay for 2018?
A)$4,960.00
B)$6,120.00
C)$6,400.00
D)$2,240.00
Answer: B
Q2) Maria is single and has a 2018 taxable income of $199,800. She also received $15,000 of tax-exempt income. Maria's effective tax rate is:
A)21.2%
B)22.0%
C)22.8%
D)32.0%
E)33.2%
Answer: A
Q3) A tax is an enforced contribution used to finance the functions of government. A)True
B)False
Answer: True
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Chapter 2: Income Tax Concepts
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Q1) Wanda bought 5 acres of land near Antler Mountain 13 years ago for $5,000. Recently, the U.S. Forest Service announced that a new ski area would be built on Antler Mountain next year. Wanda receives a telephone call from a representative of Omni Ski Corporation offering her $100,000 for the property. She rejected the offer saying she plans to hold onto the property for her grandchildren. What are the tax effects of these events?
I.Wanda will not report income because of the increased value of the property on her tax return for this year.
II.Realization occurs when the offer is given to Wanda.
III.Ability to pay occurred when the offer was extended to Wanda.
IV.Recognition only occurs when a sale is completed because of the realization concept.
A)Statements I and II are correct.
B)Statements II and III are correct.
C)Only statement IV is correct.
D)Statements I and IV are correct.
E)Statements I, III, and IV are correct.
Answer: D
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Page 4
Chapter 3: Income Sources
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Q1) Terry owns 100% of Terry Manufacturing, Inc, and has the corporation pay his son's college tuition. Terry must include the payments in his taxable income.
A)True
B)False
Answer: True
Q2) Alexis Corporation allows an employee, Cynthia, to use a company car for her vacation to San Diego.
I.Cynthia will not need to recognize the value of the use of the car since it was not cash.
II.A "cash equivalent approach" is used to measure the amount of income that must be recognized by Cynthia.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: B
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Page 5
Chapter 4: Income Exclusions
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Q1) Matt, a U.S. citizen, can exclude all of his $120,000 salary he earned as a bullfighter in Spain where he lived all year, from his U.S. tax return.
A)True
B)False
Q2) Tina receives 100 shares of Welby stock as a result of a 2 for 1 stock split. The shares have a value of $7,000 the day of the split.
A)Fully excluded from gross income.
B)Fully included in gross income.
C)Partially excluded from gross income.
Q3) Darren is a single individual who worked the entire year for Woodworks Company in Brazil. He paid $13,000 in Brazilian taxes on his Woodworks salary of $70,000. What is Darren' lowest tax liability if his taxable income is $40,000, before considering the Woodworks salary?
Q4) The interest from Guam Water Authority bonds is excluded from income as "Municipal Bond Interest."
A)True
B)False
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Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) The all-events test requires that
I.All events have occurred that determine a liability exists
II.The due date for payment of the liability has been established
III.The amount of a liability is determined with reasonable accuracy.
A)Only statement I is correct.
B)Statement I and II are correct.
C)Statement I and III are correct
D)Statements I, II, and III are correct.
E)Only statement III is correct
Q2) Which of the following production of income expenses would be deductible:
I.Interest expense on loan to acquire U.S. Treasury notes.
II.Interest expense on loan to acquire IBM Corporate bonds.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.
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Chapter 6: Business Expenses
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Q1) Margie is single and is an employee of the Stitch Corporation. She is an active participant in the company's pension plan. Margie's adjusted gross income is $67,000 and she contributes the maximum amount allowable as a deduction to her regular IRA account during the current year. How much can Margie contribute to her Roth IRA?
A)$- 0 -
B)$1,000
C)$2,200
D)$4,000
E)$5,500
Q2) Victor is single and graduated from Wabash College in May of 2017. In January of 2018, he begins to repay his student loans. During the year he pays $1,500 of interest on the loans. His adjusted gross income for the year is $65,000. Victor can deduct student loan interest of
A)$- 0 -
B)$800
C)$1,000
D)$1,200
E)$1,500
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Page 8
Chapter 7: Losses-Deductions and Limitations
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Q1) NOL carryback
A)A loss that is generally not deductible.
B)The borrower is personally liable for the debt.
C)The loss is used to offset income in future periods.
D)A liability that is only secured by the underlying property.
E)The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business.
Q2) Why did Congress enact the at-risk rules?
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Thomas has adjusted gross income of $228,000, total itemized deductions of $39,000 and has a standard deduction of $24,000. Which is his filing status?
A)Single.
B)Head of household.
C)Married filing a joint return.
D)Married filing separately.
Q2) Explain the support test and the gross income test to be a qualifying relative.
Q3) In which of the following circumstances will income of the child be taxed at the rates applicable to estates and trusts?
I.Martin, age 6, earns $14,000 this year by acting in television commercials.
II.Allen, age 22 and a full time college student, has $4,000 of interest income on municipal bonds that he inherited from his grandfather last year.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Adjusted basis is equal to the initial basis, plus or minus the cumulative effects of adjustments.
A)True
B)False
Q2) Melonie purchased 100 shares of Wake Corporation stock for $6 per share on August 3, 2016. On December 18, 2017, Melonie sells all 100 shares for $4 per share. On January 5, 2018, Melonie purchases 50 shares of Wake stock for $5 per share. What is the basis of the 50 shares Melonie holds on January 5, 2018?
A)- 0 -
B)$50
C)$250
D)$450
E)$650
Q3) When a security is sold at a loss and and a substantially identical security has been purchased within 30 days before the sale date the loss is disallowed because it is classified as a wash sale.
A)True
B)False
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11
Chapter 10: Cost Recovery on Property: Depreciation, Depletion,
and Amortization
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Sample Questions
Q1) Aaron purchases a taxicab (5-year MACRS property) for $20,000 on December 3, 2018. This is the only business asset Aaron acquires in 2018. He does not desire to use the Section 179 election and elects not to take bonus depreciation. What is the maximum amount of depreciation that he can deduct in 2018?
A)$1,000
B)$3,000
C)$4,000
D)$10,500
E)$14,000
Q2) Tucker Estates places an apartment building in service on November 22, 2014. The building's depreciable basis is $3,300,000. Tucker Estates sells the building on March 5, 2018. What is Tucker Estates' 2018 depreciation deduction on the property?
A)$15,015
B)$21,828
C)$24,998
D)$119,988
Q3) Discuss why listed property gets special attention.
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Page 12
Chapter 11: Property Dispositions
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Sample Questions
Q1) Stan sells a piece of land he used in his auto repair business at a gain of $9,000 in 2018. In addition, Stan sells equipment he purchased in 2013 for $8,000. He paid $20,000 for the equipment that had an adjusted basis of $12,000 when it was sold. He also sells some stock in 2018 at a loss of $11,000. No losses on the disposition of assets were recognized in prior years. The effect of these transactions on Stan's 2018 taxable income is:
A)Decrease of $6,000.
B)Decrease of $3,000.
C)Increase of $6,000.
D)Zero, with a long-term capital loss carryback of $2,000.
E)Zero, with a long-term capital loss carryback of $6,000.
Q2) In 2015, Jim had a $5,000 net Section 1231 gain. In 2017, Jim reported a Section 1231 loss of $12,000. In 2018, Jim has a $15,000 net Section 1231 gain. He had no other sales of property in 2018. What is Jim's ordinary income from his 2018 property transactions?
A)$- 0 -
B)$7,000
C)$3,000
D)$12,000
E)$15,000
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Chapter 12: Non-Recognition Transactions
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Sample Questions
Q1) Benito owns an office building he purchased five years ago at a cost of $600,000. The property is currently worth $800,000, has an adjusted basis of $300,000 and is encumbered by a $400,000 mortgage.
Mitch owns an apartment complex he purchased three years ago at a cost of $600,000. The property is currently worth $750,000, has an adjusted basis of $500,000 and is encumbered by a $325,000 mortgage.
Benito and Mitch would like to exchange the properties and their respective mortgages. Answer the following questions regarding the exchange.
a.Any boot is to be paid in cash. Who must pay the boot and how much must be paid?
b.Does Benito have to recognize any gain on the exchange? If so, indicate the amount of gain to be recognized and why it must be recognized.
Q2) In general, qualified replacement property for an involuntary conversion must be purchased within one year after the close of the tax year in which the involuntary conversion occurred.
A)True
B)False
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Page 14
Chapter 13: Choice of Business Entity-General Tax and Nontax Factorsformation
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Q1) Limited Liability Company
A)An entity with conduit tax characteristics that provides limited liability to its owners.
B)An organization of two or more persons operating a business that is not taxed.
C)A general partnership that offers limited liability to the partners.
D)An association created under the laws of a state giving owners limited liability.
E)Retains legal characteristics while obtaining tax characteristics of a conduit.
F)A partnership in which the liability of at least one partner is limited.
Q2) Santana Corporation operates a golf shop. It properly elected Subchapter S status on March 1 of the current year. Taxable income for the current year is $120,000. What is Santana Corporation's income tax liability?
A)$- 0 -
B)$3,000
C)$18,000
D)$25,200
E)$40,800
Q3) Discuss the characteristics of a personal service corporation (PSC).
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Q1) Pluto Corporation contributes $30,000 to qualified charitable organizations during 2018. Pluto's 2018 taxable income before any charitable contribution deduction is $280,000. Included in that amount is a $10,000 dividend-received deduction amount. Pluto also has a carryover charitable contribution of $2,000 from 2017. What is the maximum amount Pluto Corporation can deduct as a charitable contribution for 2018?
A)$- 0 -
B)$28,000
C)$29,000
D)$30,000
E)$35,000
Q2) If a sole proprietorship has a net operating loss for the current period, the loss can only be used to offset other business income in the current year. Any current loss can be carried back three years and forward five years and used to offset business income in those years.
A)True
B)False
Q3) Generally, regular corporations are not subject to the passive activity rules.
A)True
B)False
Page 16
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Chapter 15: Choice of Business Entity-Other Considerations
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Q1) On September 15, 2018, Spiral Corporation grants Jay an option to acquire 250 shares of the company's stock for $10 per share. The fair market price of the stock on the date of grant is $14. The option does not have a readily ascertainable fair market value. How much must Jay report as income at the date of grant?
A)$-0-
B)$1,000
C)$2,500
D)$3,500
Q2) Karl is scheduled to receive an annuity distribution of $10,000 from his pension plan in 2018. Due to his recent success in the stock market, he has requested that he receive only $5,000 in 2018. Because Karl will fail to receive the required annuity distribution in 2018, he is subject to a penalty of
A)$-0-
B)$500
C)$1,000
D)$2,500
E)$5,000
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Chapter 16: Tax Research
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Q1) Which of the following is/ are appellate level courts for tax cases?
I.U.S. Court of Federal Claims.
II.U.S. Supreme Court.
III.U.S. Court of Appeals for the Federal Circuit.
IV.U.S. Court of Appeals for the Tenth Circuit.
V.U.S. District Court.
A)Only statement V is correct.
B)Only statement II is correct.
C)Statements I and V are correct.
D)Statements II, III, and IV are correct.
E)Statements I, II, III, IV, and V are correct.
Q2) Citators
A)are primary authorities.
B)are not necessary for effective tax research.
C)refer to the case being evaluated as the citing case.
D)give information on the history of a court case.
Q3) Citators provide the full text of court decisions.
A)True
B)False
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