Dave Is a Plumber Who Uses the Cash Method of Accounting

question 80

Multiple Choice

Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son, Steve. This year Steve received checks in the amount of $62,000 for Dave's plumbing services. Which of the following is a True statement?

• A) Dave is taxed on $62,000 of plumbing income this year.
• B) Steve is taxed on $62,000 of plumbing income this year.
• C) Steve is taxed on $62,000 of income from gifts received this year.
• D) Dave may deduct the $62,000 received by Steve.
• E) None of the choices are correct.

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Definitions:

Activity Cost Pool

A grouping of individual costs based on the activities that drive those costs, used in activity-based costing.

Direct Labor Rate

The cost per hour for labor directly involved in manufacturing a product or providing a service.

Direct Materials Cost

The cost of raw materials that are directly used in the manufacture of a product and are easily traceable to it.

Total Overhead Applied

The total amount of manufacturing overhead costs allocated to individual jobs or products based on a predetermined overhead rate.