For Which of the Following Independent Situations Would the Recipient

question 14

Multiple Choice

For which of the following independent situations would the recipient be required to recognize taxable income?

• A)Fire to a building resulted in a bookstore being closed for two months.An insurance company paid the proprietor of the bookstore $12,000 for lost profits during the two-month period.
• B)As part of the sale price of a drug store, the seller received $12,000 for agreeing not to compete with the buyer in the same town.
• C)On January 1 of the current year, X leased a building from Y.In lieu of paying Y rent of $1,000 per month, X made improvements to the building amounting to $12,000.
• D)All of the above; each recipient is required to recognize $12,000 of taxable income.

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Definitions:

NSF Check

A check that cannot be processed due to insufficient funds in the account on which it was drawn.

Bank Reconciliation

The process of matching the balances in an organization's accounting records for a cash account to the corresponding information on a bank statement.

Outstanding Checks

Checks that have been written and recorded in the paying company's books but have not yet been cashed by the recipient.

Notes Receivable

Claims against others for money, goods, or services evidenced by written promises to pay.