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Free CPA-Regulation Exam Braindumps (page: 7)

Page 6 of 18
PDF with 69 Questions

Mosh, a sole proprietor, uses the cash basis of accounting. At the beginning of the current year, accounts receivable were $25,000. During the year, Mosh collected $100,000 from customers. At the end of the year, accounts receivable were $15,000. What was Mosh's gross taxable income for the current year?

  1. $75,000
  2. $90,000
  3. $100,000
  4. $110,000

Answer(s): C

Explanation:

Choice "c" is correct. The facts state that cash collections from customers were $100,000 and as a cash basis taxpayer this is the amount of Mosh's gross taxable income for the year. Note that according to the formula BASE - we can determine the amount of sales = $90,000, but that would give us accrual, not cash basis, income.



Choice "a" is incorrect. See explanation above.
Choice "b" is incorrect. $90,000 is the amount of sales that would be Mosh's taxable income if Mosh were an accrual basis taxpayer.
Choice "d" is incorrect. See explanation above.



Porter was unemployed for part of the year. Porter received $35,000 of wages, $4,000 from a state unemployment compensation plan, and $2,000 from his former employer's company-paid supplemental unemployment benefit plan. What is the amount of Porter's gross income?

  1. $35,000
  2. $37,000
  3. $39,000
  4. $41,000

Answer(s): D

Explanation:

RULE: Gross income includes all income unless it is specifically excluded in the tax code.
Choice "d" is correct. Wages and all unemployment compensation are not excluded from being taxable; therefore, there are included in the taxpayer's gross income for tax purposes.

Choice "a" is incorrect. All forms of unemployment compensation are included as part of gross income. Choice "b" is incorrect. The $4,000 of state unemployment compensation received is included as part of gross income. Choice "c" is incorrect. The $2,000 of his former employer's company-paid supplemental unemployment benefit plan is included as part of gross income.



Which one of the following will result in an accruable expense for an accrual-basis taxpayer?

  1. An invoice dated prior to year end but the repair completed after year end.
  2. A repair completed prior to year end but not invoiced.
  3. A repair completed prior to year end and paid upon completion.
  4. A signed contract for repair work to be done and the work is to be completed at a later date.

Answer(s): B

Explanation:

RULE: An accruable expense is one that the services have been received/performed but have not been paid for by the end of the reporting period.

Choice "b" is correct. The facts indicate that a repair was completed prior to year end but not yet invoiced. If it has not yet been invoiced, it is assumed that it has also not yet been paid for. Therefore, this is a situation in which the repair expense would be accrued at year end. Services have been performed, but they have not been paid for, as they have not even been invoiced yet.
Choice "a" is incorrect. If the repair was completed after year end, then the expense is not accruable, as the benefit of the services hasn't been received as of year end. The fact that the repair was invoiced prior to year end does not impact the situation.
Choice "c" is incorrect. If a repair was completed and paid for prior to year end, no accrual is appropriate. On the accrual basis, the expense is taken in the year the repair is completed and the benefit is received. In this case, the account payable was also paid in the same year, but this has no effect on the expense.

Choice "d" is incorrect. The facts indicate that the work is to be completed at a date later than year end. Therefore, the expense is not accruable at year end, as the benefit of the repair hasn't been received as of year end. It is reasonable that a signed contract for the repair work exists, but this has no effect on the accrual.



In the current year Jensen had the following items:

What is Jensen's AGI for the current year?

  1. $44,000
  2. $59,000
  3. $62,000
  4. $84,000

Answer(s): B

Explanation:

Choice "b" is correct. The question asks for AGI, but all of the items in the list are items of potential gross income. There are no adjustments included in the list; therefore, in this case, AGI is the same as gross income. The calculation is as follows:

Choices "a", "c", and "d" are incorrect, per the above calculation.






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