Enrolled Agent Exam Prep - Part 2 Questions and answers latest update

Which of the following statements regarding accounting methods is false? A. If inventories are necessary, the accrual method is used for sales and purchases B. A combination (hybrid) method is not an acceptable method of accounting C. A change from the accrual to the cash method of accounting requires consent from the IRS D. Under the cash method of accounting, gross income includes all items of income actually or constructively received during the year - CORRECT ANSWERB You can compute your taxable income under which of the following accounting methods? A. Hybrid method B. Accrual method C. Special method for certain items D. All of the answers are correct - CORRECT ANSWER-D Which of the following accounting changes do not require the filing of Form 3115 to request a change in accounting method? A. Correction of a math error B. Change from accrual method to cash method C. Change in the method inventory is valued D. Change from cash method to accrual method - CORRECT ANSWER-A Which of the following accounting methods is not an acceptable method of reporting income and expenses? A. If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. You can use the cash method for all other items of income and expenses. B. If you use the cash method for figuring your income, you can use the accrual method for figuring your expenses. C. Any combination that includes the cash method is treated as the cash method. D. You can use different accounting methods for reporting business and personal items. - CORRECT ANSWER-B Generally, all of the following entities may use the cash method of accounting exceptA. A family farming corporation with gross receipts of $25 million or less. B. An entity with no inventories and average gross receipts of $5 million or less. C. A qualified personal service corporation. D. A corporation that has long-term contracts. - CORRECT ANSWER-D A cash-basis taxpayer should report gross income A. Only for the year in which income is actually received in cash. B. For the year in which income is either actually or constructively received in cash only. C. Only for the year in which income is actually received whether in cash or in property. D. For the year in which income is either actually or constructively received, whether in cash or in property. - CORRECT ANSWER-D Erin earned $1000 in interest in 2014. Erin withdrew $700 in 2015 and $300 in 2016. How much of the original $1000 should Erin report as interest earned in 2016? A. $0 B. $300 C. $700 D. $1000 - CORRECT ANSWER-A Which of the following statements is not correct? A. Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. B. Under an accrual method of accounting, you generally report receipt of an advance payment for services to be performed over 3 or more years as income in the year you receive payment. C. Under an accrual method of accounting, business expenses and interest owed to a related person who uses the cash method of accounting are deductible when the all-events test has been met. D. Under an accrual method of accounting, you can take a current deduction for taxes when economic performance occurs. - CORRECT ANSWER-C Generally, a substantial business inventory requires use of which method of accounting? A. Cash B. Hybrid C. Accrual D. None of the answers are correct - CORRECT ANSWER-CJohn is a cash-basis taxpayer. He received the following items of income in December 2016: 1. The loan on his truck was forgiven because he performed accounting work for the dealer. He owed $2000 at the time. 2. A retainer of $500 from a new client to guarantee that his services would be available in February when the client would need help preparing financial statements. 3. The $800 for work he completed in November 2015. How much of this income must John include on his 2016 tax return? A. $500 B. $1300 C. $2500 D. $3300 - CORRECT ANSWER-D