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If Jenny's Bakery purchased an insurance policy, assuming the accrual accounting method is still being used, when would the company report the cost of the policy as an expense?

(A)When Jenny signs the policy

(B)When payment is made

(C)When the bakery receives the benefits of the policy

(D)When the bakery receives payments from the insurance company

(E)When the invoice is received

Larry, who uses the accrual basis of accounting, hired an extra driver to help him make deliveries in December. The extra driver only works from December 1st through the 31st . Larry pays the driver on January 5th, but the expense is shown on the December income statement. Why? Mark one answer:

(A)Cost benefit analysis (B)Matching principle (C)Cost principle (D)Going concern principle (E)Gross profit margin analysis

Correct Answer: B

The controller of a small utility company has interviewed audit firms proposing to perform the annual audit of their employee benefit plan. According to the guidelines of the Department of Labor (DOL), the selected auditor must be

(A)The firm that proposes the lowest fee for the work required. (B)Independent for purposes of examining financial information required to be filed annually with the DOL. (C)Included on the list of firms approved by the DOL. (D)Independent of the utility company and NOT relying on its services.

Correct Answer: B

In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Code Sec. 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Code Sec. 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?

(A)$50,000 capital loss (B)$68,000 capital loss (C)$18,000 ordinary loss and $50,000 capital loss (D)$50,000 ordinary loss and $18,000 capital loss

Correct Answer: D