Answer the following statements true (T) or false (F)
1. An accrual of a reserve for bad debt expense by an accrual-basis taxpayer meets the standards of all-events and economic performance.
2. A taxpayer who uses the cash method in computing gross income from his or her business must use the cash method in computing expenses of such business.
3. A business which provides a warranty on goods sold will deduct a reserve for warranty expense consistent with the reporting on its financial statements.
4. A taxpayer may use a combination of accounting methods as long as income is clearly reflected.
5. A taxpayer who uses the LIFO method of inventory valuation may use the lower of cost or market
1. FALSE
The amount of the expense cannot be known with reasonable accuracy.
2. TRUE
See "Key Point" in text.
3. FALSE
Expenses for reserves do not satisfy the all-events and economic performance requirements for accrual.
4. TRUE
The law does allow a hybrid method, but income must be clearly reflected.
5. FALSE
Lower of cost or market is not permitted with the LIFO inventory method.
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Often cited reasons for using off-balance-sheet financing include that this accounting technique
a. lowers the cost of borrowing and is inexpensive. b. lowers the cost of borrowing because borrowers already provide the correct information for reporting purposes. c. lowers the cost of borrowing and avoids violation of debt covenants. d. simplifies contracts and improves cash flows. e. simplifies contracts and lowers the cost of borrowing.
Speeches about people include all of the following EXCEPT
a. a speech about someone famous. b. a speech about someone you know personally. c. a speech about someone abhorrent to all. d. a speech about a cartoon character.
10 years ago, the City of Melrose issued $3,000,000 of 8% coupon, 30-year, semiannual payment, tax-exempt muni bonds. The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 6% of the face amount. New 20-year, 6%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2% of the amount of bonds sold. What is the net present value of the refunding? Note that cities pay no income taxes, hence taxes are not relevant.
A. $453,443 B. $476,115 C. $499,921 D. $524,917 E. $551,163
Mr. and Mrs. Oaks are buying a lot in a mountainous area for a second home. The area is undeveloped, but the seller has promised a golf course, paved roads, clubhouse, etc. What steps should the Oaks take before buying a lot?