Business, 30.03.2020 17:31, gracetay3721

On December 12, 2016, Hook Company, a calendar year, cash basis business, mailed a $5,600 bill to Mrs. Gilder for professional services rendered during the month of November. Mrs. Gilder dropped off her $5,600 check at Hook's office on December 28, but the company secretary did not deposit the check in Hook's bank account until January 3. Which of the following statements is true?According to the constructive receipt doctrine, Hook must recognize $5,600 income in 2016.Which of the following statements about the all-events test is false?

An accrued expense is not deductible unless the liability for the expense is fixed.
An accrued expense is not deductible unless the amount of the expense is determinable with reasonable accuracy.
An accrued expense is not deductible unless economic performance with respect to the liability has occurred.
None of the above is false.

Answers: 3

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Answers

answered: angie249

Question:

On December 12, 2016, Hook Company, a calendar year, cash basis business, mailed a $5,600 bill to Mrs. Gilder for professional services rendered during the month of November. Mrs. Gilder dropped off her $5,600 check at Hook's office on December 28, but the company secretary did not deposit the check in Hook's bank account until January 3 2017.

A Which of the following statements is true?

According to the constructive receipt doctrine, Hook must recognise $5,600 income in 2016According to the substance over form doctrine, Hook does not recognise $5,600 until 2017As a cash basis tax payer, Hook does not recognise $5,600 income until 2017As a cash basis tax payer, Hook can choose to recognise $5,600 in either 2016 or 2017 .

B. Which of the following statements about the all-events test is false?

An accrued expense is not deductible unless the liability for the expense is fixed. An accrued expense is not deductible unless the amount of the expense is determinable with reasonable accuracy.An accrued expense is not deductible unless economic performance with respect to the liability has occurred.None of the above is false.

Answer A: The correct answer is 1. According to the constructive receipt doctrine, Hook must recognise $5,600 income in 2016

Explanation:

Constructive receipt is an accounting terminology that requires an individual or organisation to remit taxes on revenue even if the money has not been received physically or lodged.

Constructive receipt matters for reporting taxable income, especially under the cash-basis method of accounting.Constructive receipt refers to situations where income can be used despite the fact that this money has not yet been physically received.Constructive receipt occurs in cash accounting situations, but it does not apply or occur with the use of accrual accounting situations.

According to this principle, taxpayers must include any revenue on their taxes based on the year that income was constructively received, even if they don’t have possession of the funds.

Receipt of a check is deemed constructive receipt whose amount must be recognised in principle as well, in taxation and otherwise.

Answer B:

The correct answer for part B of the question is

4. None of the above is false.

Under an accrual method of accounting, income is includible in gross income in the taxable year in which the all-events test is met.

The all-events test, under U.S. federal income tax law, is the requirement that all the events fixing an accrual-method taxpayer's right to receive income or spend it must occur before the taxpayer can report an item of income or expense.

The all events test is two-pronged concerning the recognition of income, three-pronged when dealing with deductions. It is met when the following criteria are met:

the right to earnings is fixed (recognition of income) or all events have occurred which establish the fact of liability (deduction), and the amount thereof can be determined with reasonable accuracy.The third criteria which is applicable when dealing with an accrual method taxpayer's right to a deduction is (3) economic performance has occurred with respect to the liability

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