ACC 302 - CHAPTER 4 EXAM QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026
Accounting Income - Answers The accountants concept of income is generally based upon the
realization principle.
Accounting Method - Answers The method under which income and expenses are determined for tax
purposes.
Accrual Method - Answers A method of accounting that reflects expenses incurred and income
earned for any one tax year.
Alimony and Separate Maintenance Payments - Answers Alimony deductions result from the payment
of a legal obligation arising from the termination of a marital relationship.
Alimony Recapture - Answers The amount of alimony that previously has been included in the gross
income of the recipient and deducted by the payor that now is deducted by the recipient and
included in the gross income of the payor as the result of front-loading.
Annuity - Answers A fixed sum of money payable to a person at specified times for a specified period
of time or for life.
Assignment of Income - Answers A taxpayer attempts to avoid the recognition of income by assigning
to another the property that generates the income.
Cash Receipts Method - Answers A method of accounting that reflects deductions as paid and income
as received in any one tax year.
Claim of Right Doctrine - Answers A judicially imposed doctrine applicable to both cash and accrual
basis taxpayers that holds that an amount is includible in income upon actual or constructive receipt if
the taxpayer has an unrestricted claim to the payment.
Constructive Receipt - Answers If income is unqualifiedly available although not physically in the
taxpayer's possession, it still is subject to the income tax.
Economic Income - Answers The change in the taxpayer's net worth, as measured in terms of market
values, plus the value of the assets the taxpayer consumed during the year.
Fruit and Tree Metaphor - Answers The courts have held that an individual who earns income from
property or services cannot assign that income to another.
Gross Income - Answers Income subject to the federal income tax.
Group Term Life Insurance - Answers Life insurance coverage provided by an employer for a group of
employees.
Hybrid Method - Answers A combination of the accrual and cash methods of accounting.
Imputed Interest - Answers For certain long-term sales of property, the IRS can convert some of the
gain from the sale into interest income if the contract does not provide for a minimum rate of interest
to be paid by the purchaser.
Income - Answers For tax purposes, an increase in wealth that has been realized.
Original Issue Discount - Answers The difference between the issue price of a debt obligation (e.g., a
corporate bond) and the maturity value of the obligation when the issue price is less than the
maturity value.
Partnership - Answers For income tax purposes, a partnership includes a syndicate, group, pook, or
joint venture, as well as ordinary partnerships.
Recovery of Capital Doctrine - Answers When a taxable sale or exchange occurs, the seller may be
permitted to recover his or her investment (or other adjusted basis) in the property before gain or
loss is recognized.
S Corporation - Answers The designation for a small business corporation.
Taxable Year - Answers The amount of a gift that is subject to the unified transfer tax.
Accounting Income - Answers The accountants concept of income is generally based upon the
realization principle.
Accounting Method - Answers The method under which income and expenses are determined for tax
purposes.
Accrual Method - Answers A method of accounting that reflects expenses incurred and income
earned for any one tax year.
Alimony and Separate Maintenance Payments - Answers Alimony deductions result from the payment
of a legal obligation arising from the termination of a marital relationship.
Alimony Recapture - Answers The amount of alimony that previously has been included in the gross
income of the recipient and deducted by the payor that now is deducted by the recipient and
included in the gross income of the payor as the result of front-loading.
Annuity - Answers A fixed sum of money payable to a person at specified times for a specified period
of time or for life.
Assignment of Income - Answers A taxpayer attempts to avoid the recognition of income by assigning
to another the property that generates the income.
Cash Receipts Method - Answers A method of accounting that reflects deductions as paid and income
as received in any one tax year.
Claim of Right Doctrine - Answers A judicially imposed doctrine applicable to both cash and accrual
basis taxpayers that holds that an amount is includible in income upon actual or constructive receipt if
the taxpayer has an unrestricted claim to the payment.
Constructive Receipt - Answers If income is unqualifiedly available although not physically in the
taxpayer's possession, it still is subject to the income tax.
Economic Income - Answers The change in the taxpayer's net worth, as measured in terms of market
values, plus the value of the assets the taxpayer consumed during the year.
Fruit and Tree Metaphor - Answers The courts have held that an individual who earns income from
property or services cannot assign that income to another.
Gross Income - Answers Income subject to the federal income tax.
Group Term Life Insurance - Answers Life insurance coverage provided by an employer for a group of
employees.
Hybrid Method - Answers A combination of the accrual and cash methods of accounting.
Imputed Interest - Answers For certain long-term sales of property, the IRS can convert some of the
gain from the sale into interest income if the contract does not provide for a minimum rate of interest
to be paid by the purchaser.
Income - Answers For tax purposes, an increase in wealth that has been realized.
Original Issue Discount - Answers The difference between the issue price of a debt obligation (e.g., a
corporate bond) and the maturity value of the obligation when the issue price is less than the
maturity value.
Partnership - Answers For income tax purposes, a partnership includes a syndicate, group, pook, or
joint venture, as well as ordinary partnerships.
Recovery of Capital Doctrine - Answers When a taxable sale or exchange occurs, the seller may be
permitted to recover his or her investment (or other adjusted basis) in the property before gain or
loss is recognized.
S Corporation - Answers The designation for a small business corporation.
Taxable Year - Answers The amount of a gift that is subject to the unified transfer tax.
