Question 1

Which of the following must use the accrual method of accounting?
I.
A property management company,operating as a C corporation,with average annual gross receipts of $50 million.
II.
An incorporated law firm with average annual gross receipts of $6 million.
III.
An unincorporated grocery store with average annual gross receipts of $1,200,000.

Accepted Answer

A)  All of the above must use the accrual method.
B)  None of the above must use the accrual method.
C)  Only I and II must use the accrual method.
D)  Only I and III must use the accrual method.
E)  Only III must use the accrual method.F) A) and B)
G) B) and D)

Question 2

The taxpayer does need the IRS's permission to change from the FIFO inventory method to the LIFO method.

Accepted Answer

A) True 
 B)False

Question 3

The taxpayer had incorrectly been using the cash method of accounting.For 2017,the company voluntarily changed to the accrual method.The adjustment due to the change in method as calculated at the beginning of 2017 was $120,000 (positive) .The adjustment as calculated as of the end of 2017 was $80,000 (positive) .As a result of the change in method,the company must:

Accepted Answer

A)  Increase its income for 2017 by $120,000.
B)  Increase its income for 2017 by $80,000.
C)  Increase its income for 2017 by $30,000.
D)  Increase its income for 2017 by $40,000.
E)  None of the above.F) C) and D)
G) B) and D)

Question 4

The tax year of one of the principal partners may determine the partnership's tax year.

Accepted Answer

A) True 
 B)False

Question 5

Sandstone,Inc.,has consistently included some factory overhead as a current expense,rather than as a cost of producing goods.As a result,the beginning inventory for 2017 is understated by $40,000.If Sandstone voluntarily changes accounting methods effective January 1,2017,the positive adjustment to the inventory is a § 481 adjustment and $10,000 must be added to taxable income for each year 2017,2018,2019,and 2020.

Accepted Answer

A) True 
 B)False

Question 6

Hal sold land held as an investment with a fair market value of $100,000 for $36,000 cash and a note for $64,000 that was due in two years.The note bore interest of 7% when the applicable Federal rate was 4%.Hal's cost of the land was $40,000.Because of the buyer's good credit record and the high interest rate on the note,Hal thought the fair market value of the note was at least $74,000.

Accepted Answer

A)  Hal can elect to treat the $36,000 as a recovery of capital.
B)  Hal must recognize $60,000 gain in the year of sale.
C)  Hal must recognize $36,000 gain in the year of sale.
D)  Unless Hal elects not to use the installment method, Hal must recognize $21,600 gain in the year of sale.
E)  None of the above.F) B) and E)
G) B) and C)

Question 7

The taxpayer has consistently,but incorrectly,used an allowance for bad debts.At the beginning of the year,the balance in the allowance account is $90,000.

Accepted Answer

A)  If the IRS examines the taxpayer's return and requires the taxpayer to change accounting methods, the taxpayer will be required to recognize an additional $90,000 of income (one-half in the current year and one-half in the following year)  as the adjustment due to the change in accounting methods.
B)  If the taxpayer voluntarily changes methods, the $90,000 adjustment can be spread over the current and three following years.
C)  If the taxpayer voluntarily changes methods, the $90,000 reserve can be used to absorb bad debts until the account balance is zero.
D)  If the IRS examines the taxpayer's return, no adjustment to the reserve account will be required if the balance is consistent with prior bad debt experience.
E)  None of the above.F) A) and B)
G) B) and D)

Question 8

Todd,a CPA,sold land for $300,000 cash on the date of sale plus a note for $500,000 due in one year.The interest rate on the note was equal to the Federal rate.The fair market value of the note was $400,000.Todd's basis in the land was $80,000.

Accepted Answer

A)  If Todd uses the cash basis to report the income from his practice, he cannot use the installment method to report the gain on the sale of the land.
B)  If Todd uses the accrual basis to report the income from his practice, he cannot use the installment method to report the gain from the sale of the land.
C)  If Todd uses the installment method to report the gain, the contract price is $800,000.
D)  If Todd does not use the installment method, his gain in the year of sale is $620,000 ($700,000 - $80,000) .
E)  None of the above.F) A) and E)
G) A) and D)

Question 9

Which of the following taxpayers is required to use the accrual method of accounting?

Accepted Answer

A)  A retail business with average annual gross receipts of $800,000.
B)  A medical doctor with average annual gross receipts of $2 million.
C)  An insurance agency with average annual gross receipts of $2 million.
D)  All of the above are required to use the accrual method.
E)  None of the above is required to use the accrual method.F) B) and D)
G) B) and C)

Question 10

In the case of a small home construction company that builds under long-term contracts,generally:

Accepted Answer

A)  The percentage of completion method is required to report the income from the construction contracts.
B)  The percentage of completion method can be elected and generally will defer income until the contract is completed.
C)  The completed contract method can be used and generally will defer income.
D)  The accrual method must be used because inventories are an income-producing factor.
E)  None of the above is true.F) A) and D)
G) A) and C)

Question 11

Yard Corporation,a cash basis taxpayer,received $10,000 from a customer in 2016.In 2016,the customer filed a claim for a refund of the fee.In 2017,Yard refunded the customer $6,000.In 2016,Yard paid $5,000 in estimated state income tax.In May 2017,Yard received a state income tax refund of $2,000 for overpayment of its 2016 income tax.Yard was in the 35% marginal tax bracket in 2016 and in the 15% marginal tax bracket in 2017.What are the tax effects of the 2017 payment to the customer and the collection of the state income taxes overpaid?

Accepted Answer

The payment to the customer is eligible ...

Exam 16: Accounting Periods and Methods

The tax year of one of the principal partners may determine the partnership's tax year.

Correct Answer
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Correct Answer
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The taxpayer does need the IRS's permission to change from the FIFO inventory method to the LIFO method.

Correct Answer
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In the case of a small home construction company that builds under long-term contracts,generally:

Correct Answer
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Todd,a CPA,sold land for $300,000 cash on the date of sale plus a note for $500,000 due in one year.The interest rate on the note was equal to the Federal rate.The fair market value of the note was $400,000.Todd's basis in the land was $80,000.

Correct Answer
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Correct Answer
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The payment to the customer is eligible ...
View Answer

Which of the following taxpayers is required to use the accrual method of accounting?

Correct Answer
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The taxpayer has consistently,but incorrectly,used an allowance for bad debts.At the beginning of the year,the balance in the allowance account is $90,000.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Exam 16: Accounting Periods and Methods

The tax year of one of the principal partners may determine the partnership's tax year.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The taxpayer does need the IRS's permission to change from the FIFO inventory method to the LIFO method.

Correct AnswerverifiedShow Answer

In the case of a small home construction company that builds under long-term contracts,generally:

Correct AnswerverifiedShow Answer

Todd,a CPA,sold land for $300,000 cash on the date of sale plus a note for $500,000 due in one year.The interest rate on the note was equal to the Federal rate.The fair market value of the note was $400,000.Todd's basis in the land was $80,000.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe payment to the customer is eligible ...View AnswerShow Answer

Which of the following taxpayers is required to use the accrual method of accounting?

Correct AnswerverifiedShow Answer

The taxpayer has consistently,but incorrectly,used an allowance for bad debts.At the beginning of the year,the balance in the allowance account is $90,000.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The payment to the customer is eligible ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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