Cpa 02220 type1 mc 108 cpa 02220 a d may 90 ii 34 corr

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Unformatted text preview: for a three-year lease commencing January 1, 1990 to cover rents for the years 1990, 1991, and 1992. In conformity with GAAP, Ral did not include any part of this rental in its income statement for the year ended December 31, 1989. What amount should Ral include in its 1989 taxable income for rent revenue? a. b. c. d. $0 $750 $9,000 $27,000 CPA-02213 Explanation Choice "d" is correct. Ral should include $27,000 in its 1989 taxable income for rent revenue. Rule: Rental revenue received in advance is taxable in the year of receipt as opposed to over the term of the lease as is required by GAAP. Choices "a", "b", and "c" are incorrect, per the above rule. CPA-02215 Type1 M/C 107. CPA-02215 A-D May 90 II #32 Corr Ans: C PM#13 R 3-99 Page 18 John Budd is the sole stockholder of Ral Corp., an accrual basis taxpayer engaged in wholesaling operations. Ral's retained earnings at January 1, 1989 amounted to $1,000,000. For the year ended December 31, 1989, Ral's book income, before federal income tax, was $300,000. Included in the computation of this $300,000 were the following: Dividends received on 500 shares of stock of a taxable domestic corporation that had 1,000,000 shares of stock outstanding (Ral had no portfolio indebtedness) $1,000 Loss on sale of investment in stock of unaffiliated corporation (this stock had been held for two years; Ral had no other capital gains or losses) (5,000) Keyman insurance premiums paid on Budd's life (R...
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