1. A doctors incorporated medical practice may end the last day of any month of the year.
a. True
b. False
2. A C corporation that does not have a natural business year must use a calendar year as its tax year.
a. True
b. False
A C corporations selection of a tax year, generally, is independent of the tax year of its principal shareholders.
c. True
d. False
3. The DEF Partnership had three equal partners when it was formed. Partners D and E were calendar year taxpayers and Partner Fs tax year ended on June 30th before he joined the partnership. The partnership may use a calendar year and partner F may continue to use the tax year ending June 30th.
a. True
b. False
4. The tax year of one of the principal partners may determine the partnerships tax year.
a. True
b. False
5. The Seagull Partnership has three equal partners. Partner As tax year ends June 30th, and Partners B and C use a calendar year. If the partnership uses the calendar year to report its income, Partner A is permitted to defer partnership income earned from July through December 2014 until he files his tax return for his year ending June 30, 2015.
a. True
b. False
6. Red Corporation and Green Corporation are equal partners in the R & G Partnership. Red Corporations tax year ends September 30th, and Green Corporation is a calendar year taxpayer. The greatest aggregate deferral of income would occur if the partnership used a calendar year for tax purposes.
a. True
b. False
7. A CPA practice that is incorporated earns 40% of its annual revenues in the months of March and April. Although the CPA practice is a professional services corporation (PSC), it may use a fiscal year ending April 30th.
a. True
b. False
8. The ability of the CPA to timely prepare a tax return is a justification for the partnerships use of a particular tax year.
a. True
b. False
9. In 2004, a medical doctor who incorporated his practice elected a fiscal year ending September 30th. During the fiscal year ended September 30, 2014, he received a salary of $190,000. During the period from October 1, 2014 to December 31, 2014, the corporation paid the doctor a total salary of $60,000, and paid him $240,000 of salary in the following 9 months. The corporations salary deduction for the fiscal year ending September 30, 2015, is limited to $240,000.
a. True
b. False
10.Laura Corporation changed its tax year-end from July 31st to December 31st in 2014. The income for the period August 1, 2014 through December 31, 2014 was $35,000. The corporate tax rate is 15% on the first $50,000 of income, 25% on income from $50,001 to $75,000, and 34% on income from $75,001 to $100,000. A portion of Lauras June December 2014 income will be taxed at 34%.
a. True
b. False
11.In 2014, T Corporation changed its tax year from ending each April 30th to ending each December 31st. The corporation earned $60,000 during the period May 1, 2014 through December 31, 2014. The annualized income for the short year is $90,000.
a. True
b. False
12.Snow Corporation began business on May 1, 2014, and elected to use the calendar year for tax purposes. Brown Corporation, a calendar year corporation, sold all of its assets and liquidated as of April 30, 2014. Neither Snow Corporation nor Brown Corporation must annualize their income for their 2014 returns.
a. True
b. False
13.Ted, a cash basis taxpayer, received a $150,000 bonus in 2014 when he was in the 35% marginal tax bracket. In 2015, when Ted was in the 28% marginal tax bracket, it was discovered that the bonus was incorrectly computed, and Ted was required to refund $40,000 to his employer. As a result of the refund, Ted can reduce his 2015 tax liability by $14,000 (.35 × $40,000).
a. True
b. False
14.Generally, an advantage to using the cash method of accounting, as compared to the accrual method, is that under the cash method income is not recognized until it is collected, rather than being taxed as soon as the taxpayer has the right to collect the income.
a. True
b. False
15.A calendar year, cash basis corporation began business on April 1, 2014, and paid $2,400 for a 24-month liability insurance policy. An accrual basis, calendar year taxpayer also began business on April 1, 2014, and purchased a 24- month liability insurance policy. The accrual basis taxpayer must amortize the premiums over 24 months but the cash basis taxpayer may deduct the total premiums in 2014.
a. True
b. False
.
16.Alice, Inc., is an S corporation that has been in business for five years. Its annual gross receipts have never exceeded $1 million. The corporation operates a retail store and also owns rental property. The sales from the retail store and the rental income may be reported by the cash method, unless Alice previously elected the accrual method.
a. True
b. False