11) Mere appreciation in wealth (economic benefit) with no sale of the underlying asset considered taxable income for tax purposes.

True or False

12) A cash based business is taxed on income when:

A. The invoice is issued / customer is billed, invoice remains uncollected.

B. The product is delivered and the invoice is issued, but remains uncollected.

C. When income is collected.

D. It is at the choosing of the business owner.

13) In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

True or False

14) An accrual based taxpayer recognizes taxable income in the year the income is earned, unless the related receivable remains uncolleted at the end of the year.

True or False

15) As a general rule:

I.	Income from property is taxed to the person who owns the property.
II.	Income from services is taxed to the person who earns the income.
III.	The assignee of income from property must pay tax on the income.
IV.	The person who receives the benefit of the income must pay the tax on the income.

A. Only I and II are true.

B. Only III and IV are true.

C. I, II, and III are true, but IV is false.

D. I, II, III, and IV are true.

E. None of the above is true.

16) With respect to the prepaid income from services, which of the following is true?

A. The treatment of prepaid income is the same for tax and financial accounting.

B. A cash basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.

C. An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.

D. An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less.

E. None of the above.

17) An accrual basis taxpayer can defer all advance payments for services until the services are performed if the method of accounting for the services is the same for tax and financial reporting purposes.

True or False

18) Judy is a cash basis attorney. In 20X1, she performed services in connection with the formation of a corporation and received stock with a value of $3,000 for her services. By the end of the year, the value of the stock had decreased to $1,000. She continued to hold the stock. Judy must recognize $1,000 of gross income from the stock for 20X1.

True or False

19) Abby, an accrual basis taxpayer, collects the rent for December 20X1 and January 20X2 on December 1, 20X1. Abby must include the December 20X1 rent and the January 20X2 rent in her 20X1 gross income because she received the cash in 20X1.

True or False

20) On January 1, 20X1, an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 36 months. The amount received for the contract was $1,800. The taxpayer should report $600 of income each year in 20X1, 20X2, and 20X3.

True or False

21) The Green Company, an accrual basis taxpayer, provides business-consulting services. Clients generally pay a retainer at the beginning of a 12-month period. This entitles the client to no more than 40 hours of services. Once the client has received 40 hours of services, Green charges $400 per hour. Green Company allocates the retainer to income based on the number of hours worked on the contract. At the end of the tax year, the company had $40,000 of unearned revenues from these contracts. The company also had $10,000 in unearned rent income received from excess office space leased to other companies. Based on the above, Green must include in gross income for the current year:

A. $0.

B. $10,000.

C. $40,000.

D. $50,000.

E. None of the above.

22) Kate is an accrual basis, calendar-year taxpayer. On November 1, 20X1, Kate leased out a building for $4,000 a month. On that day Kate received six months rental income on the building, a total of $24,000 ($4,000 6 months). How much income must Kate include on her 20X1 tax return as a result of this transaction?

A. $4,000

B. $8,000

C. $16,000

D. $24,000

E. None of the above