Question

In: Accounting

1. Which of the following items would be excluded from the calculation of taxable income by...

1. Which of the following items would be excluded from the calculation of taxable income by an auditor employing the bank-deposit audit method?

A.. Existing funds from wages in the taxpayer's bank account.

B.. A deposit of $125 in proceeds from the taxpayer's garage sale.

C.. A deposit of a $25 birthday gift from the taxpayer's grandmother.

D.. A deposit of $20 from the taxpayer's lottery winnings

2. Which of the following is typical of a field audit, but not a correspondence audit or office audit?

A.. The taxpayer is asked to mail documents and information to the IRS.

B.. The audit is held at the auditor's office.

C.. The audit is held at the taxpayer's home or business.

D.. The taxpayer is likely to be arrested.

Expert Solution

Answer to question number 1

The problem states to identify the item which would be excluded from the calculation of taxable income by an auditor employing the banak-deposit audit method. Bank deposit audit method for calculation of taxable incomes will include those which can be added as taxable income like receipts from sale.

In the given case, option A, B, and D are source of income as option A speaks about deposit of cash earned by way of wages, option B is deposit against sale proceeds and option D is winning from lottery. All these options taxable whereas option C is a gift received from grandmother which is exempt from tax.

Hence the answer is option C.

Answer to question number 2

The problem states to identify the option of typical field audit but not a correspondence audit or office audit.

In the given case, option A, B, and C are the example of correspondence audit or office audit whereas option D states that the taxpayer is likely to be arrested is somewhere linked to field audit but not a correspondence audit or office audit.

Hence the answer is option D.

ekkarill92 answered 1 year ago

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