Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
61 Cards in this Set
- Front
- Back
- 3rd side (hint)
|
Gross Receipts
(Define in Two Words) |
Selling Price
|
|
|
|
Explain the Installment Method of Income Recognition
|
The spread of the gain from an installment sale of property over the collection periods
|
|
|
|
Explain the Percentage of Completion Method for Income Recognition
|
When mainly contractors, spread profits from contracts over the periods in which the work is done.
|
|
|
|
Explain the Completed Contract Method
|
When one defers all profit until the year in which the project is completed.
|
|
|
|
The Cash Receipts Method is called the cash receipts method because?
|
Property or services are included in gross income when you get RECEIPT of income. Regardless of the year the income was earned.
|
|
|
|
What is all that is necessary to include a property or service into gross income?
|
It simply needs to have a fair market value - cash equivalent
|
|
|
|
Is a creditor's mere promise to pay a receipt using the Cash Receipts Method?
|
No, this accounts receivable is not a receipt because usually there is no supporting note, and thus no substance to the transaction, and no value.
|
|
|
|
Are notes receivable a receipt under Cash Receipts Method?
|
Yes, because a note in payment for services has income in the year of receipt equal to the FMV of the note.
|
|
|
|
Under the cash receipts method. Scenario:
You receive a note in 2008, FMV: $10, for this note, you receive $12 for in 2009. What is your Gross Income for Both years? |
2008: $10
2009: $12 - 10 (Recovery of Capital) = $2 Remember that this is a "Recovery of Capital" |
|
|
|
If your rights to income are contested, which year are you subject to tax on that income?
a. Year Income Earned b. Year Income Received |
b. Year Income Received
|
|
|
|
The accrual basis of income is generally the amount the taxpayer has ____(a)____ and not based on the ____(b)____, which is all that's needed for the Cash Receipts Method
|
(a) Right to Receive
(b) Fair Market Value |
|
|
|
What is usually the income producing factor when utilizing a hybrid method of accounting?
|
Inventory
|
|
|
|
When using the hybrid method of accounting. Which activities must be used with the accrual method of accounting and what must be used with the cash basis of accounting?
|
Accrual - Inventory
Cash - All other Income and Expense items (e.g. dividend and interest income) |
|
|
|
Do large or small businesses usually use the hybrid method?
|
Small
|
|
|
|
Is income constructively received subject to income tax?
HINT for more Information! |
Yes
If income is unqualifiedly available although not physically in the taxpayer's possession, it is subject to the income tax. |
An example is accrued interest on a savings account. Under the constructive receipt of income concept, the interest is taxed to a depositor in the year available, rather than the year actually withdrawn. The fact that the depositor uses the cash basis of accounting for tax purposes is irrelevant. See Reg. § 1.451–2.
|
|
|
"Income set apart or made available is not constructively received if its actual receipt is subject to substantial restrictions"
An example of this is? |
Life Insurance
|
|
|
|
The life insurance industry has used ___?___ _____?_____ as a cornerstone for designing life insurance contracts with favorable tax features.
|
Substantial Restrictions
|
|
|
|
Carlos is given $10,000 of stock every year from his employer that he can not sell until 5 years. What is his gross income from this scenario every year?
|
His gross income every year is $0 until year 5 where it is $50,000.
The reason, is that there are substantial limitations until 5 years. |
|
|
|
Must you amortized original issue discount?
If so, how is it calculated? |
OID represents interest and must be amortized over the life of the debt obligation using the effective interest method.
|
|
|
|
The fiscal year option generally is not available to:
1. ? 2. ? 3. ? |
1. Partnerships
2. S Corporations 3. Personal Service Corporations |
|
|
|
The IRS may prescribe the method of accounting if a taxpayer?
1.? 2.? |
1. Has not adopted a method of accounting.
2. The IRS has deemed that the taxpayer's method of accounting does not clearly reflect income |
|
|
|
What is the primary tax advantage of the cash receipts and disbursement method?
|
The control that the taxpayer may have over the timing of recognition of income and expense.
|
|
|
|
The "all events test" applies to which method of accounting?
|
Accrual Method
The test simply states that income is earned when all events have occurred that fix the right to receive such income. (Remember: its amount can be determined with reasonable accuracy.) |
|
|
|
What does the doctrine of constructive receipt prevent a taxpayer to do?
|
To arbitrarily shift income from one year to another.
|
|
|
|
Observe each year's recognition of income from original issue discount.
What is most important? |
What's important is that you remember to carry the first years interest when you calculate the next years gross income.
|
|
|
|
Series EE bonds occur after?
|
1979 (1980 1st Year)
|
|
|
|
Series E bonds occur before?
|
1980 (1979 last Year)
|
|
|
|
Explain how Series E & EE appreciate
|
Series E & EE are issued at a discount and are redeemable for fixed amounts that increase at stated intervals.
|
|
|
|
How do you determine the interest income from Series E & EE bonds?
|
It is the difference between the purchase price and the amount received upon redemption
|
|
|
|
The Series E & EE bonds can be converted into Series HH bonds with what attractive feature?
|
You are able to defer interest recognition even when you convert to HH bonds. Thus, these U.S. savings bonds have attractive income deferral features not available with corporate bonds and CD's by financial institutions
|
|
|
|
What two options do you have when recognizing interest from Series E & EE bonds?
|
1. You can recognize income on an annual incremental basis based on the bond's increase in redemption value.
2. Recognize income at the time the bond is redeemed. |
|
|
|
TRUE OR FALSE
If you elect to report interest for E & EE bonds on a annual basis, the election applies to all such bonds you possess and all future bonds you acquire |
TRUE
If you wish to change this you must obtain permission from the IRS. |
|
|
|
Consider a 24 month contract sold 5/1 and the fact below:
The portion of the advance payment that relates to services performed in the tax year of receipt is included in gross income in the tax year of receipt. The portion of the advance payment that relates to services to be performed after the tax year of receipt is included in gross income in the TAX YEAR FOLLOWING THE TAX YEAR OF RECEIPT of the advance payment. How many unit months of income will be reported in gross income for the following years? Year 1:? Year 2:? Year 3:? |
Year 1: 8 Months
Year 2: 16 Months Year 3: 0 Months The excess of service is simply postponed until the next year. |
|
|
|
The option deferral of Advance Payments for Services cannot be applied to what two conditions?
|
1. Prepaid Rent Income
2. Prepaid Interest Income |
|
|
|
Why would interest coupon payments given to a son be included in the income of the father?
|
Because income from property (interest, dividends, rent) must be included in the gross income of the OWNER of the property.
|
|
|
|
Interest is accrued daily by the IRS, thus it is vital when selling a bond, that you add what to the selling price?
|
The accrued interest to the current DATE
|
|
|
|
What is a constructive dividend?
|
Shareholder's use of corporate assets.
|
|
|
|
Do dividends accrue on a daily basis similar to interest?
|
No
Because dividends require declaration which is at the discretion of the corporation's board of directors |
|
|
|
Because of the beneficial Tax rate, the following are not eligible for the special tax rates:
1. 2. 3. |
1. Certain dividends from foreign countries.
2. Dividends from Tax-Exempt Entities 3. Dividends that do not satisfy the holding requirement |
|
|
|
Ordinary income is taxed at?
|
Ordinary income rates!
|
|
|
|
Who is entitled to a dividend and on what date?
|
The owner of the stock on the record date
|
|
|
|
You donate a stock to your cousin after the declaration date but before the record date, who is responsible for the dividend income?
|
The donor, because the fruit has sufficiently ripened even though he may not be the person for the record date.
Remember it's because it's a GIFT and not sold. If it were sold then the receiver would be responsible for the tax. |
|
|
|
An S Corporation elects to be taxed similarly to a ___?____
|
Partnership
|
|
|
|
Questions about community property income most frequently arise when the husband and wife.....?
|
File separate returns
|
|
|
|
In a community property system, how would one spouse be able to legal own his own personal belongings? (2 Ways)
|
1. Acquire it before marriage
2. Receive by gift or inheritance following marriage |
|
|
|
TRUE OR FALSE
The transferee does not recognize income and has a cost basis equal to the transferor's basis when property (not cash) is transferred to an ex spouse |
TRUE
It is as if one spouse is giving the other spouse property without the intervention of all laws and accounting methods. |
|
|
|
A transfer of property other than cash to a former spouse pursuant to a divorce is considered to be a?
|
Division of property
|
|
|
|
Why would you want to disguise a property settlement as alimony?
|
Because alimony is deducted from the donor's gross income. Property division is simply divesting of your property with not gain or loss.
|
|
|
|
If the change in the amount of the payments exceeds statutory limits, ___?____ ____?_____ results to the extent of the excess alimony payments.
|
Alimony Recapture
|
|
|
|
What happens to the alimony recaptured?
|
It is included in the the THIRD YEAR gross income.
|
|
|
|
What is the reason for alimony recapture?
|
To safeguard against a property settlement being disguised as alimony
|
|
|
|
The excess alimony payments that must be included in the third year gross income of the payor because of alimony recapture, allows the payee to to _____?_______ the excess alimony payments
|
Deduct
|
|
|
|
Observe the Alimony Recapture Formula
|
|
|
|
|
If you receive goods and services free of charge, has income been realized?
|
No
|
|
|
|
How is the imputed interest calculated?
|
It uses the rate the Federal government pays on new borrowings and is compounded semiannually
|
|
|
|
Say that a rate is charged on a loan but is less than the rates published by the IRS, what is the imputed interest rate?
|
It is the difference between the two rates.
|
|
|
|
Information Card
|
The imputed interest rules apply to the following types of below-market loans
1. Gift Loans (made out of love, affection or generosity) 2. Compensation-related loans (employer loans to employees) 3. Corporation-Shareholder Loans 4. Tax Avoidance Loans |
|
|
|
Who is the annuitant?
|
The person who owns the annuity
|
|
|
|
When withdraw from your annuity before the starting date, what must you record the cash received? unless?
|
You must report it as gross income, given that the amount withdrawn is less than the interest accrued on the annuity.
If the withdrawal exceeds the interest accrued, then the remainder is a recovery of capital. |
|
|
|
Collections on and after the annuity start date, can exclude from income (as a recovery of capital) ?
|
They can exclude the proportion of each annuity payment received that the investment in the contracts bears to the expected return under the contract.
|
|
|
|
How do you calculate the exclusion amount for annuities?
|
|
|
