Sam and Sandy Have an Agreement Whereby Sam Will Build

question 19

Multiple Choice

Sam and Sandy have an agreement whereby Sam will build a house on Sandy's beachfront lot.Before construction begins,Sandy changes her mind and decides she would rather build an addition onto her home in Baltimore.She discusses this with Sam,and they agree that he would build the addition to her home and not build the beach house.In this case,Sandy and Sam have:

• A)Entered into a substituted contract that will discharge the original contract only upon performance of the second contract.
• B)Entered into a substituted contract that will discharge the original contract upon formation of the second contract.
• C)Entered into an accord and satisfaction that will discharge the original contract only upon performance of the second contract.
• D)Entered into a novation that will discharge the original contract only upon performance of the second contract.
• E)Exercised a force majeure clause that will discharge the original contract only upon performance of the second contract.

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Definitions:

Operating Loss Carryforward

Future reductions in taxable income allowed due to losses incurred in previous periods.

Temporary Differences

Differences between the book basis and tax basis of an asset or liability that result in taxable or deductible amounts in future years.

Intraperiod Income Tax Allocation

The process of assigning income tax expenses or benefits to different components of comprehensive income within the same financial period.

Marginal Income Tax Rate

The percentage of tax applied to your income for each additional dollar of income.