Question

1.Southlawn Inc.'s taxable income is computed as follows:

Book income before tax	$	2,405,600
Net permanent differences		(512,000	)
Net temporary differences		(189,000	)
Taxable income	$	1,704,600

Using a 34% rate, compute Southlawn's tax expense per books and tax payable.

a.Tax expense per books $643,824; tax payable $579,564.

b.Tax expense per books $579,564; tax payable $643,824.

c.Tax expense per books $817,904; tax payable $579,564.

d.None of the choices are correct.

2.Monro Inc. uses the accrual method of accounting. Here is a reconciliation of Monro's allowance for bad debts for the current year.

Beginning allowance for bad debts	$	61,150
Actual write-offs of accounts receivable during the year		(80,000	)
Addition to allowance		88,500
Ending allowance for bad debts	$	69,650

Which of the following statements is true?

a.Bad debt expense per books and the deduction for bad debts is $69,650.

b.Bad debt expense per books and the deduction for bad debts is $88,500.

c.Bad debt expense per books is $80,000, and the deduction for bad debts is $88,500.

d.Bad debt expense per books is $88,500, and the deduction for bad debts is $80,000.

3.On December 12, 2016, Hook Company, a calendar year, cash basis business, mailed a $5,600 bill to Mrs. Gilder for professional services rendered during the month of November. Mrs. Gilder dropped off her $5,600 check at Hook's office on December 28, but the company secretary did not deposit the check in Hook's bank account until January 3. Which of the following statements is true?

a.According to the constructive receipt doctrine, Hook must recognize $5,600 income in 2016.

b.According to the substance over form doctrine, Hook does not recognize $5,600 income until 2017.

c.As a cash basis taxpayer, Hook does not recognize $5,600 income until 2017.

d.As a cash basis taxpayer, Hook can elect to recognize $5,600 income in either 2016 or 2017

Answer 1

1

Tax Expense as per Books = $2,405,600 - $512,000 permanent differences) * 34%

= $643824

Tax Payable = $2,405,600 - $512,000 -$189000) * 34%

= $579564

Answer is a. Tax expense per books $643,824; tax payable $579,564

2

Current year allowance created is being charged to P & L as Bad debt expense and acutal debt incurred is reduced from Allowance for Bad Debt Account.

In this Ques, $.88,500 Is addition to allowance i.e., has been booked as expense and $80000 is actual bad debt incurred which is being reduced from Allowance for Bad debt Account.

Therefore answer is D)Bad debt expense per books is $88,500, and the deduction for bad debts is $80,000.

3

Answer is A)a.According to the constructive receipt doctrine, Hook must recognize $5,600 income in 2016

Since the cheque is being issued and received in Hook's office 28.12 and, it should be recognised as income in the year 2016