13. Which one of the following statements about the cash receipts and disbursements method is correct? a. Partnerships that have a C corporation as a partner cannot use the cash receipts and disbursements method of accounting. b. The cash receipts and disbursements method of accounting is popular because it requires a minimum of recordkeeping and allows taxpayers to postpone recognition of income by refusing to accept cash receipts. c. Sole proprietors must use the cash receipts and disbursements method of accounting to account for their businesses if they use it to account for their other (personal) items of income and expense. d. All of the above. 14. Which one of the following statements about accounting for expenses is incorrect? a. Under the cash method of accounting, businesses ordinarily may not deduct (or capitalize) an expense until the year during which the expense actually is paid. b. An expense may be deducted the year payment is made, even though payment is made with borrowed funds. c. Amounts paid by check are considered paid when the check is mailed or delivered, provided that the bank honors the check. d. Amounts paid by credit card are considered paid when the business pays the credit card bill. 16. A corporation's taxable income before the dividends received deduction (DRD) is $70,000. Included in this amount is dividend income of $60,000 from another corporation in which the taxpayer owns 85 percent of its stock outstanding. The corporation's taxable income after the DRD is: a. $70,000. b. $10,000. c. $19,000. d. $22,000. e. none of the above. 17. Rachelle Earhart had $60,000 in profits from her sole proprietorship, $5,000 in dividends, and $3,000 in interest. She deducted $3,000 for health insurance premiums, $6,000 for real property taxes, $4,239 for self-employment taxes, $10,000 for mortgage loan interest, and $2,500 for state income taxes. Based on this information, what is Rachelle's adjusted gross income? a. $42,261 b. $60,761 c. $65,000 d. $68,000 18. Judith Beane had a regular tax liability of $20,000 and a tentative minimum tax of $23,000. What is the amount of her alternative minimum tax? a. $0 b. $3,000 c. $20,000 d. $23,000 19. Which one of the following items has to be included in gross income (unless an exception applies)? a. The amount by which property has increased in value during the year. b. The proceeds of a loan. c. Discharge of a debt. d. The amount of adjusted basis when property is sold. 22. Bethell Management performed consulting services for one client and was paid $3,000. It performed consulting services for another client in exchange for tax preparation services for which it normally would be billed $2,000. It purchased from a third client a computer whose retail price was $1,000 but which was on sale for $750. How much of these amounts received does it have to include in its gross income? a. $3,000 b. $3,250 c. $5,000 d. $5,250 Essay Questions (eleven points each) 1. Melissa Wimberley sold 100 shares of ABC stock with an adjusted basis of $1,000 for $2,000. She also sold 500 shares of XYZ stock with an adjusted basis of $20,000 for $12,000. She had no other sales of capital assets for the year. Her ordinary income for the year was $50,000. The previous tax year she had a capital gain of $2,000 and $45,000 of ordinary income. How should Melissa report her loss on the sale of XZY stock? 2. William Nowlands filing status is qualifying surviving spouse. His taxable income for 2009 is $76,000. Included in that amount is $5,000 of qualified dividends. How much federal income tax does he have to pay for the year