Question

Please answer the True/False questions to the best of your knowledge.

1) For federal tax purposes, gross income from the sale of tangible goods is reduced by the seller's cost of goods sold.   

2) Taxable income is defined as gross income minus allowable deductions and credits.

3) A taxpayer that wants to change its taxable year from a fiscal year to a calendar year is not required to receive permission from the IRS to make the change.   

4) A firm's choice of taxable year is usually dictated by the annual operating cycle of the firm's business.   

5) When an individual taxpayer begins a new business as a sole proprietorship and wants to keep records on a fiscal year basis, permission to change taxable years is not required because this is a new business.

6) A taxpayer that operates more than one business may use a different method of accounting for each business.   

7) PPQ Inc. wants to change from a hybrid method of accounting to the accrual method of accounting for tax purposes. PPQ can't make this change without receiving permission from the IRS.

8) Taxpayers may adopt the cash receipts and disbursements method, the accrual method, or a hybrid method of accounting for tax purposes.   

9) Accurate measurement of taxable income is the only objective of the federal income tax laws.

10) Political lobbying expenses are nondeductible.   

11) The after-tax cost of a dollar of business meal expense is 79 cents for a taxpayer with a 21% marginal tax rate.   

12) Mr. Stern, a cash basis taxpayer, was notified by his bank that he earned $1,193 of interest on his savings account in 2018. Mr. Stern has not withdrawn any funds from this account for eight years and did not receive the notification until January 26, 2019. Mr. Stern does not recognize the interest as income in 2018.   

13) Elcox Company, a calendar year, cash basis taxpayer, paid $950 to purchase eight months' worth of office supplies on December 12. Elcox can deduct $950 in the year of payment.  

14) Taxpayers that sell merchandise to their customers must use the accrual method to account for purchases and sales of merchandise.

15) Marz Services Inc. is a personal service corporation with $60 million average annual gross receipts. Marz must use the accrual method of accounting for tax purposes.

Answer 1

1) Solution: True

Explanation: The gross income from the tangible goods sale is subtracted by the seller's COGS for federal tax purposes,

2) Solution: False

Explanation: Taxable income is inclusive of few or all items of income and is subtracted by expenses and several other deductions

3) Solution: False

Explanation: When taxpayer have to change its taxable year from a fiscal year to a calendar year then permission is required from the IRS.

4) Solution: True

Explanation: A choice of taxable year for a firm is generally decided by the annual operating cycle of the entity

5) Solution: False

Explanation: For a new buisness also the permission to change taxable years is needed

6) Solution: True

Explanation: The taxpayer who operates more than one entity is allowed for usage of a different accounting method for each business

12) Solution: False

Explanation: The interest can be recognized by Stern under the doctrine of constructive receipt as income

13) Solution: True

Explanation: The cash basis taxpayer - Elcox Company is allowed to deduct the amount in the year of payment

14) Solution: True

Explanation: The taxpayers who sell merchandise to their customers are required to use the accrual method for purchases and sales.

15) Solution: False

Explanation: Personal service corporations need to use the cash method regardless of the gross receipt amount.

Have answered more than 4 parts