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Exam 16: Accounting Periods and Methods

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Question 21

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Gold Corporation,Silver Corporation,and Copper Corporation are equal partners in the GSC Partnership.The partners' tax year-ends are as follows: Gold December 31st Silver April 30th Copper September 30th

A) The partnership is free to elect any tax year.
B) The partnership may use any of the 3 year-end dates that its partners use.
C) The partnership must use a September 30th year-end.
D) The partnership must use a April 30th year-end.
E) None of the above.

F) None of the above
G) D) and E)

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Question 22

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

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) B) and C)
G) A) and B)

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Question 23

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For a taxpayer who is required to use the percentage of completion method,the taxpayer can elect to defer the recognition of income and the related costs until the taxable year in which cumulative contract costs are at least 10 percent of the estimated contract costs.

The accrual method generally is required to report income for which of the following types of businesses:

Andrew owns 100% of the stock of Crow's Farm Inc. ,an S corporation,that raises cattle and corn.The farm's annual gross receipts have never exceeded $3 million and the farm is not considered a tax shelter.

Which of the following statements regarding a 52-53 week tax year is correct?

If an installment sale contract does not charge interest on the sale of a capital asset,only capital gain will be recognized over the life of the contract.

In regard to choosing a tax year for a business owned by individuals,which form of business provides the greater number of options in regard to the tax year?

Which of the following must use the accrual method of accounting? I. An incorporated property management company 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.

In 2015,Godfrey received a $50,000 sales commission on a long-term contract.But in 2016,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 2015 but he is in the 25% marginal tax bracket in 2016.

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 30,2015,the shareholder-employee received $120,000 salary.The corporation paid the shareholder-employee a salary of $15,000 during the period beginning October 1,2015 through December 31,2015.

A C corporation is required to annualize its income:

In the case of a sale reported under the installment method,gain is recognized in each year the seller collects on the installment contract.

In 2015,Cashmere Construction Company enters into a contract to build a beach cottage for Martha and Rob for a total price of $500,000.Cashmere estimates the total cost to complete the cottage to be $400,000.In 2015,Cashmere incurred $300,000 of costs on the contract,and in 2016 the contract was completed at a total cost of $425,000.Cashmere is not required to recognize any income from the contract until 2016.

When an accrual basis taxpayer finances the construction of its building by borrowing,the interest is added to the cost of the building.

A cash basis taxpayer sold investment land in 2015 for $200,000.He received $40,000 in the year of sale and $160,000 in 2016.The cost of the land was $80,000.Under the installment method,the taxpayer would report a $24,000 gain in 2015.

Karen,an accrual basis taxpayer,sold goods in December 2015 for $20,000.The customer was unable to pay cash.So the customer gave Karen a note for $20,000 that was payable in April 2016.The note bore interest at the Federal rate.The fair market value of the note at the end of 2015 was $18,000.Karen collected $20,500 from the customer in April 2015,$20,000 principal plus $500 interest.Under the accrual method,Karen must recognize income of:

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

Gold Corporation,Silver Corporation,and Platinum Corporation are equal partners in the GSP Partnership,which was formed on July 1,2015.Gold and Silver use a calendar tax year,and Platinum's tax year ends June 30th.GSP is not a seasonal business.

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 2015 is understated by $40,000.If Sandstone voluntarily changes accounting methods effective January 1,2015,the positive adjustment to the inventory is a § 481 adjustment and $10,000 must be added to taxable income for each year 2015,2016,2017,and 2018.