Individual Taxation Paper 6

1

Axis Corp. is an accrual-basis calendar-year corporation. On December 13, 2012, the Board of Directors declared a 2% of profits bonus to all employees for services rendered during 2012 and notified them in writing. None of the employees own stock in Axis. The amount represents reasonable compensation for services rendered and was paid on March 13, 2013. Axis’ bonus expense may






2

On December 1, 2012, Michaels, a self-employed cash-basis calendar-year taxpayer, borrowed $100,000 to use in her business. The loan was to be repaid on November 30, 2013. Michaels paid the entire interest of $12,000 on December 1, 2012. What amount of interest is deductible on Michaels’ 2013 income tax return?






3

Blair, CPA, uses the cash receipts and disbursements method of reporting. In 2012, a client gave Blair 100 shares of a listed corporation’s stock in full satisfaction of a $5,000 accounting fee the client owed Blair. This stock had a fair market value of $4,000 on the date it was given to Blair. The client’s basis for this stock was $3,000. Blair sold the stock for cash in January 2013. In Blair’s 2012 return, what amount of income should be reported in connection with the receipt of the stock?






4

Unless the Internal Revenue Service consents to a change of method, the accrual method of tax reporting is generally mandatory for a sole proprietor when there are
Accounts receivable for services rendered
Year-end merchandise inventories






5

Alex Burg, a cash-basis taxpayer, earned an annual salary of $80,000 at Ace Corp. in 2012, but elected to take only $50,000. Ace, which was financially able to pay Burg’s full salary, credited the unpaid balance of $30,000 to Burg’s account on the corporate books in 2012, and actually paid this $30,000 to Burg on January 30, 2013. How much of the salary is taxable to Burg in 2012?






6

Which of the following taxpayers may use the cash method of accounting for tax purposes?






7

The uniform capitalization method must be used by
I. Manufacturers of tangible personal property.
II. Retailers of personal property with $2 million dollars in average annual gross receipts for the three preceding years.






8

Mock operates a retail business selling illegal narcotic substances. Which of the following item(s) may Mock deduct in calculating business income?
I. Cost of merchandise.
II. Business expenses other than the cost of merchandise.






9

Banks Corp., a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant, and the reimbursement is not treated as wages subject to withholdings. For 2013, what percentage of the meal expense may Banks deduct?






10

Which of the following costs is not included in inventory under the Uniform Capitalization rules for goods manufactured by the taxpayer?






Result

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