CBA CBA Tax Planning & Accounting Fundamentals 1 — Questions and Answers
Question 1: Which accounting method records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged?
- Cash basis accounting
- Modified cash basis accounting
- Accrual basis accounting (Correct answer)
- Installment basis accounting
Correct answer: Accrual basis accounting
Accrual accounting matches revenues with the period they are earned and expenses with the period they are incurred, providing a more accurate picture of financial performance.
Question 2: A C corporation is subject to 'double taxation' because:
- It pays taxes in both the state and federal jurisdictions
- Profits are taxed at the corporate level and again when distributed as dividends to shareholders (Correct answer)
- It files two separate federal tax returns each year
- It is taxed on gross revenue rather than net income
Correct answer: Profits are taxed at the corporate level and again when distributed as dividends to shareholders
C corporations pay corporate income tax on profits, and shareholders pay personal income tax again when those profits are distributed as dividends, creating double taxation.
Question 3: For federal income tax purposes, an S corporation is best described as a:
- Pass-through entity where income is taxed only at the shareholder level (Correct answer)
- Standard corporation taxed at the 21% flat corporate rate
- Partnership with unlimited liability for all members
- Nonprofit entity exempt from all federal taxes
Correct answer: Pass-through entity where income is taxed only at the shareholder level
S corporations are pass-through entities — the corporation itself pays no federal income tax; instead, profits and losses pass through to shareholders who report them on personal returns.
Question 4: The Section 179 deduction allows businesses to:
- Deduct home office expenses for remote employees
- Immediately expense the full cost of qualifying business assets rather than depreciating them over time (Correct answer)
- Defer capital gains on the sale of business property
- Exclude up to $250,000 of gain from the sale of a principal residence
Correct answer: Immediately expense the full cost of qualifying business assets rather than depreciating them over time
Section 179 lets businesses deduct the full purchase price of qualifying equipment and software in the year placed in service, rather than depreciating the cost over multiple years.
Question 5: Which financial statement shows a company's revenues, expenses, and net income or loss over a specific period?
- Balance sheet
- Statement of cash flows
- Income statement (Correct answer)
- Statement of retained earnings
Correct answer: Income statement
The income statement (also called the profit and loss statement) summarizes revenues and expenses over a reporting period, resulting in net income or net loss.
Question 6: Self-employment tax paid by a sole proprietor covers contributions to which two federal programs?
- Medicare and Medicaid
- Social Security and Medicare (Correct answer)
- Social Security and Unemployment Insurance
- Medicare and Federal Disability Insurance
Correct answer: Social Security and Medicare
Self-employment tax (15.3% on net earnings up to the Social Security wage base) covers both the employee and employer portions of Social Security and Medicare taxes.
CBA CBA Tax Planning & Accounting Fundamentals 1
Which accounting method records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged?