25 May Question 1. The realization requirement gives an incentive to own assets that h
Question
1. The realization requirement gives an incentive to own assets that have increased in value and to sell assets whose value has decreased.
a. True
b. False
2. Judy is a cash basis attorney. In 2014, she performed services in connection with the formation of a corporation and received stock with a value of $4,000 for her services. By the end of the year, the value of the stock had decreased to $2,000. She continued to hold the stock. Judy must recognize $4,000 of gross income from the stock for 2014.
a. True
b. False
3. Barney painted his house which saved him $3,000. According to the realization requirement, Barney must recognize $3,000 of income.
a. True
b. False
4. Nicholas owned stock that decreased in value by $20,000 during the year, but he did not sell the stock. He earned $45,000 salary, but received only $34,000 because $11,000 in taxes were withheld. Nicholas saved $10,000 of his salary and used the remainder for personal living expenses. Nicholas’s economic income for the year exceeded his gross income for tax purposes.
a. True
b. False
5. The fact that the accounting method the taxpayer uses to measure income is consistent with GAAP does not assure that the method will be acceptable for tax purposes.
a. True
b. False
6. The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.
a. True
b. False
7. A cash basis taxpayer purchased a certificate of deposit for $1,000 on July 1, 2013 that will pay $1,100 upon its maturity on June 30, 2015. The taxpayer must recognize a portion of the income in 2014.
a. True
b. False
8. Ralph purchased his first Series EE bond during the year. He paid $709 for a 10-year bond with a $1,000 maturity value. The yield to maturity on the bonds was 3.5%. Ralph is notrequired to recognize the $291 ($1,000 – $709) original issue discount until the bond matures. However, Ralph can elect to amortize the discount over the ten-year period.
a. True
b. False
9. A sole proprietorship purchased an asset for $1,000 in 2014 and its value was $1,500 at the end of 2014. In 2015, the sole proprietorship sold the asset for $1,400. The sole proprietorship realized a taxable gain of $400 in 2015 but an economic loss of $100 in 2015.
a. True
b. False
.
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