ACCT 324 Week 2 Quiz

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ACCT 324 Week 2 Quiz

1.Question :(TCO 2) John owns interest coupons that mature on December 31, 2011. The coupons can be converted into cash at any bank at maturity. John does NOT convert the coupons to cash until 2012. John:
Student Answer: will recognize income under the constructive receipt doctrine in 2011.
 will recognize income in 2012 when converted.
 will realize but not recognize income in 2012.
 will realize but not recognize income in 2011.
 None of the above


 2.Question :(TCO 3) Iris, a widow, elected to receive the proceeds of a $100,000 face value life insurance policy on the life of her deceased husband in annual installments of $12,500 over the remainder of her life, estimated to be 10 years.
Student Answer: None of the payments received are included in gross income because their source is the life insurance policy.
 All of the payments are included in Iris’ gross income because she paid nothing for the right to receive the payments.
 Iris will not recognize income until the ninth year, after she has recovered her investment.
 Iris must include $2,500 in gross income each year for the first 10 years she collects on the policy.
 None of the above

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 3.Question :(TCO 3) Section 119 excludes the value of meals from the employee’s gross income:
Student Answer: whenever the employer pays for the meal and for the convenience of the employee.
 when the meals are provided for the employee on the employer’s premises as a convenience to the employee.
 when the meals are provided for the employee on the employer’s premises for the convenience of the employer.
 All of the above
 None of the above


 4.Question :(TCO 3) In 2011, Kathy sold an apartment building to her 100% controlled corporation, Kathy, Inc. The apartment building cost $500,000, and the balance in the accumulated depreciation account was $400,000. Kathy, Inc. paid $100,000 in the year of sale and gave Kathy a note for $900,000 plus adequate interest due in 2013.
Student Answer: Kathy can use the installment method only if tax avoidance is not a principal purpose of the transaction.
 Kathy generally cannot report the gain by the installment method.
 Both statements are true.
 Both statements are false.
 None of the above


 5.Question :(TCO 7) Evaluate the following statements:

I. De minimis fringe benefits are those that are so immaterial that accounting for them is impractical.
II. De minimis fringe benefits are subject to strict antidiscrimination requirements.

Student Answer: I and II are true.
 I is true, but II is false.
 I and II are false.
 I is false, but II is true.
 None of the above


 6.Question :(TCO 7) A C corporation is required to annualize its income:

I. the year the corporation changes its tax year;
II. when there is a greater than 50% change in stock ownership; and
III. the first year the corporation is in existence, if the first tax return includes less than 12 months.

Student Answer: All of the above are true.
 Only I is true.
 Only II is true.
 Only III is true.
 None of the above are correct.


 7.Question :(TCO 7) Hal sold land held as an investment with a fair market value of $100,000 for $36,000 cash and a note for $64,000 that was due in two years. The note bore interest of 11% when the applicable federal rate was 7%. Hal’s cost of the land was $40,000. Because of the buyer’s good credit record and the high interest rate on the note, Hal thought the fair market value of the note was at least $74,000.
Student Answer: Hal can elect to treat the $36,000 as a recovery of capital.
 Hal must recognize the $70,000 gain in the year of sale.
 Hal must recognize the $60,000 gain in the year of sale.
 Unless Hal elects not to use the installment method, Hal must recognize $21,600 gain in the year of sale.
 None of the above


 8.Question :(TCO 7) Joe sells property to Jack for $10,000 cash plus Jack’s note (fair market value and face amount of $90,000). Joe’s basis for the property was $15,000. What is the recognized gain/loss?
Student Answer: $20,000
 None of the above


 9.Question :(TCO 7) The installment method CANNOT be applied to the following:
Student Answer: Gains on property held for sale in the ordinary course of business
 Depreciation recapture under Section 1245 or Section 1250
 Gains on stocks or securities traded on an established market
 All of the above
 None of the above


 10.Question :(TCO 2) Which of the following is an exclusion from wage and salary taxable income?
Student Answer: Long-term care insurance
 Child adoption expenses
 Employee discounts
 Qualified transportation fringe
 All of the above



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