Question 1

Taylor sold a capital asset on the installment basis and did not charge interest on the deferred payment due in three years.

Accepted Answer

A)  Interest will be imputed,thus increasing the total gross income from the transactions.
B)  Interest will be imputed,thus decreasing the capital gain.
C)  Interest will not be imputed because the contract is for less than five years.
D)  Interest will be imputed,thus increasing the buyer's basis in the asset.
E)  None of the above.F) C) and E)
G) A) and C)

Question 2

Generally,an advantage to using the cash method of accounting,as compared to the accrual method,is that under the cash method income is not recognized until it is collected,rather than being taxed as soon as the taxpayer has the right to collect the income.

Accepted Answer

A) True 
 B)False

Question 3

In the case of a change from the lower-of-cost-or-market FIFO to the LIFO inventory method:

Accepted Answer

A)  The taxpayer must value the beginning inventory to be the same as if the company had used the LIFO method for all the years the company was in business.
B)  The taxpayer must seek written permission from the IRS in order to make the change.
C)  The adjustment due to the change in accounting method must be spread over 3 years,the year of change and the two subsequent years.
D)  All of the above.
E)  None of the above.F) A) and E)
G) A) and D)

Question 4

The lower of cost or market can be used in conjunction with both the FIFO and LIFO method.

Accepted Answer

A) True 
 B)False

Question 5

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 E)
G) D) and E)

Question 6

The DEF Partnership had three equal partners when it was formed.Partners D and E were calendar year taxpayers and Partner F's tax year ended on June 30th before he joined the partnership.The partnership may use a calendar year and partner F may continue to use the tax year ending June 30th.

Accepted Answer

A) True 
 B)False

Question 7

Gold Corporation,Silver Corporation,and Platinum Corporation are equal partners in the GSP Partnership,which was formed on July 1,2016.Gold and Silver use a calendar tax year,and Platinum's tax year ends June 30th.GSP is not a seasonal business.

Accepted Answer

A)  GSP must use a tax year ending December 31st,and Platinum can retain its tax year ending June 30th.
B)  GSP must use a tax year ending June 30th,and the partners must change their tax years to end on June 30th.
C)  GSP must use a tax year ending December 31st and Platinum must change its tax year to December 31st.
D)  GSP may elect its tax year without regard to the partners' tax years.
E)  None of the above.F) All of the above
G) A) and E)

Question 8

Gray Company,a calendar year taxpayer,allows customers to return defective merchandise for a full refund within 30 days of the purchase.In 2016,the company refunded $400,000 for claims involving sales.The $400,000 consisted of $350,000 in refunds from 2016 sales and $50,000 in refunds from 2015 sales.All of the refunds from 2015 sales were for claims filed in 2015 and were paid in January and February 2016.At the end of 2016,the company had $12,000 in refund claims for sales in 2016 for which payment had been approved.These claims were paid in January 2016.Also in January 2016,the company received an additional $30,000 in claims for sales in 2016.This $30,000 was paid by Gray in February 2017.With respect to the above,Gray can deduct:

Accepted Answer

A)  $350,000 in 2016.
B)  $362,000 in 2016.
C)  $392,000 in 2015.
D)  $442,000 in 2016.
E)  None of the above.F) C) and D)
G) A) and B)

Question 9

Gold Corporation sold its 40% of the Ruby Corporation common stock.Gold received $10 million in the year of the sale and a note for $15 million,payable in three years with interest at the Federal rate.Gold's basis in the stock was $5 million.Assume that Gold Corporation will report the gain by the installment method where the method is permitted.

Accepted Answer

A)  The installment method is never permitted on the sale of stock.
B)  If Ruby Corporation stock is traded on an established securities market,Gold must recognize a $20 million gain in the year of sale.
C)  If the Ruby Corporation stock is not traded on a national exchange,Gold must recognize a $20 million gain.
D)  All of the above are true.
E)  None of the above is true.F) A) and D)
G) D) and E)

Question 10

In 2016,Godfrey received a $50,000 sales commission on a long-term contract.But in 2017,the customer filed bankruptcy and Godfrey's employer was not able to collect from the customer.Under the bonus agreement,Godfrey was required to repay the employer $20,000 of the bonus.Godfrey was in the 35% marginal tax bracket in 2016 but he is in the 25% marginal tax bracket in 2017.

Accepted Answer

A)  Godfrey can amend his 2016 tax return and reduce his taxable income by $20,000.
B)  Godfrey should deduct the $20,000 paid in 2017 and thus his tax savings will be $5,000.
C)  Godfrey can reduce his 2017 tax liability by 35% × $20,000 = $7,000.
D)  Godfrey should not have reported the income in 2016 because of the contingencies.
E)  None of the above.F) C) and E)
G) B) and C)

Question 11

Brown Corporation elected dollar-value LIFO in 2011.Its ending inventory at base year cost and its LIFO indexes are as follows:
(1)
(2)
(3)= (1)/(2)
Ending Inventory
Ending Inventory@
At End of the Year Prices
LIFO Index
Base Year Prices
2011
$1,000,000
1.00
$1,000,000
2012
1,100,000
1.06
1,037,736
2013
1,200,000
1.10
1,090,909
2014
1,300,000
1.11
1,171,171
2015
1,250,000
1.20
1,041,667
2016
1,550,000
1.23
1,260,163
​
Compute the LIFO inventory at the end of 2016.

Accepted Answer

The company experienced a decrease in in...

Question 12

Aspen stores is a large retail chain.The company has four warehouses that are located in various parts of the country.The goods are stored at the warehouses and then moved to the retail stores for sale.

Accepted Answer

A)  The costs of operating the warehouses can be deducted in the year the costs are incurred because it is a loss incurred from not selling goods.
B)  The costs of operating the warehouses can be deducted in the year the costs are incurred because they did not add to the value of the goods.
C)  The costs of operating the warehouses can be capitalized or expensed by electing one method or the other.
D)  The warehouses are on-sight storage facilities and,therefore,their costs must be added to the cost of goods on hand.
E)  None of the above.F) A) and B)
G) None of the above

Question 13

Under the percentage of completion method,if the actual costs are ____ the estimated costs,the taxpayer must pay interest on the underpayment of prior years' taxes.

Accepted Answer

A)  greater than
B)  less than
C)  equal to or greater than
D)  equal to
E)  None of the aboveF) A) and C)
G) A) and E)

Question 14

The LIFO method is beneficial only when prices are rising and the taxpayer is increasing the quantities of inventory items on hand.

Accepted Answer

A) True 
 B)False

Question 15

Related-party installment sales include all of the following except the first seller's:

Accepted Answer

A)  Brothers and sisters.
B)  Controlled corporations.
C)  Lineal descendants and ancestors.
D)  Uncles and aunts.
E)  All of the above would be considered related parties.F) A) and B)
G) C) and D)

Question 16

Which of the following statements regarding a 52-53 week tax year is not correct?

Accepted Answer

A)  Some tax years will include more than 366 calendar days.
B)  Whether the particular tax year includes 52 weeks or 53 weeks is not elective.
C)  The year-end must be the same day of the week in all years.
D)  All of the above are correct.
E)  None of the above is correct.F) A) and B)
G) A) and E)

Question 17

Purple Corporation,a personal service corporation (PSC) ,adopted a fiscal year ending September 30th.The sole shareholder of the corporation is a calendar year taxpayer.During the fiscal year ending September 30,2016,the shareholder-employee received $120,000 salary.The corporation paid the shareholder-employee a salary of $15,000 during the period beginning October 1,2016 through December 31,2016.

Accepted Answer

A)  The corporation salary expense for the fiscal year ending September 30,2017 is limited to $120,000.
B)  The corporation salary expense for the fiscal year ending September 30,2017 is limited to $135,000.
C)  The corporation salary expense for the fiscal year ending September 30,2017 is limited to $60,000.
D)  The corporation must switch to a calendar year.
E)  None of the above.F) C) and D)
G) B) and C)

Question 18

Wendy sold property on the installment basis in 2014 for more than her basis in the property.Wendy was to receive installment payments at the end of each year for the next five years.In 2016,Wendy was killed in a car accident and the note was transferred to her estate.

Accepted Answer

A)  The estate must recognize the gain from all the amounts collected on the installment obligation in 2016.
B)  The income will be reported on Wendy's 2016 income tax return as income in respect of a decedent.
C)  The entire gain must be recognized in 2014.
D)  Gain is recognized by Wendy and reported on her 2016 income tax return when the note is transferred into the estate.
E)  None of the above.F) A) and D)
G) A) and C)

Question 19

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) C) and E)
G) A) and C)

Question 20

In the case of an accrual basis taxpayer,an item of income:

Accepted Answer

A)  Is not recognized until cash is received.
B)  From services is never recognized until the services are performed.
C)  Is not recognized if the customer can return the goods.
D)  Is recognized when all the events have occurred to fix the taxpayer's right to receive the income and the amount of the income can be determined with reasonable accuracy.
E)  None of the above.F) B) and C)
G) A) and D)

Exam 18: Accounting Periods and Methods

Correct Answer
verified
The company experienced a decrease in in...
View Answer

Wendy sold property on the installment basis in 2014 for more than her basis in the property.Wendy was to receive installment payments at the end of each year for the next five years.In 2016,Wendy was killed in a car accident and the note was transferred to her estate.

Correct Answer
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In the case of an accrual basis taxpayer,an item of income:

Correct Answer
verified

Aspen stores is a large retail chain.The company has four warehouses that are located in various parts of the country.The goods are stored at the warehouses and then moved to the retail stores for sale.

Correct Answer
verified

Which of the following statements regarding a 52-53 week tax year is not correct?

Correct Answer
verified

Correct Answer
verified

Generally,an advantage to using the cash method of accounting,as compared to the accrual method,is that under the cash method income is not recognized until it is collected,rather than being taxed as soon as the taxpayer has the right to collect the income.

Correct Answer
verified

Taylor sold a capital asset on the installment basis and did not charge interest on the deferred payment due in three years.

Correct Answer
verified

In the case of a change from the lower-of-cost-or-market FIFO to the LIFO inventory method:

Correct Answer
verified

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 DEF Partnership had three equal partners when it was formed.Partners D and E were calendar year taxpayers and Partner F's tax year ended on June 30th before he joined the partnership.The partnership may use a calendar year and partner F may continue to use the tax year ending June 30th.

Correct Answer
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Related-party installment sales include all of the following except the first seller's:

Correct Answer
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The LIFO method is beneficial only when prices are rising and the taxpayer is increasing the quantities of inventory items on hand.

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
verified

The lower of cost or market can be used in conjunction with both the FIFO and LIFO method.

Correct Answer
verified

Under the percentage of completion method,if the actual costs are ____ the estimated costs,the taxpayer must pay interest on the underpayment of prior years' taxes.

Correct Answer
verified

Gold Corporation,Silver Corporation,and Platinum Corporation are equal partners in the GSP Partnership,which was formed on July 1,2016.Gold and Silver use a calendar tax year,and Platinum's tax year ends June 30th.GSP is not a seasonal business.

Correct Answer
verified

Exam 18: Accounting Periods and Methods

Correct AnswerverifiedThe company experienced a decrease in in...View AnswerShow Answer

Wendy sold property on the installment basis in 2014 for more than her basis in the property.Wendy was to receive installment payments at the end of each year for the next five years.In 2016,Wendy was killed in a car accident and the note was transferred to her estate.

Correct AnswerverifiedShow Answer

In the case of an accrual basis taxpayer,an item of income:

Correct AnswerverifiedShow Answer

Aspen stores is a large retail chain.The company has four warehouses that are located in various parts of the country.The goods are stored at the warehouses and then moved to the retail stores for sale.

Correct AnswerverifiedShow Answer

Which of the following statements regarding a 52-53 week tax year is not correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Generally,an advantage to using the cash method of accounting,as compared to the accrual method,is that under the cash method income is not recognized until it is collected,rather than being taxed as soon as the taxpayer has the right to collect the income.

Correct AnswerverifiedShow Answer

Taylor sold a capital asset on the installment basis and did not charge interest on the deferred payment due in three years.

Correct AnswerverifiedShow Answer

In the case of a change from the lower-of-cost-or-market FIFO to the LIFO inventory method:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The DEF Partnership had three equal partners when it was formed.Partners D and E were calendar year taxpayers and Partner F's tax year ended on June 30th before he joined the partnership.The partnership may use a calendar year and partner F may continue to use the tax year ending June 30th.

Correct AnswerverifiedShow Answer

Related-party installment sales include all of the following except the first seller's:

Correct AnswerverifiedShow Answer

The LIFO method is beneficial only when prices are rising and the taxpayer is increasing the quantities of inventory items on hand.

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

The lower of cost or market can be used in conjunction with both the FIFO and LIFO method.

Correct AnswerverifiedShow Answer

Under the percentage of completion method,if the actual costs are ____ the estimated costs,the taxpayer must pay interest on the underpayment of prior years' taxes.

Correct AnswerverifiedShow Answer

Gold Corporation,Silver Corporation,and Platinum Corporation are equal partners in the GSP Partnership,which was formed on July 1,2016.Gold and Silver use a calendar tax year,and Platinum's tax year ends June 30th.GSP is not a seasonal business.

Correct AnswerverifiedShow Answer

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The company experienced a decrease in in...
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