Question 1

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.

Accepted Answer

A)  Godfrey can amend his 2015 tax return and reduce his taxable income by $20,000.
B)  Godfrey should deduct the $20,000 paid in 2016 and thus his tax savings will be $5,000.
C)  Godfrey can reduce his 2016 tax liability by 35% × $20,000 = $7,000.
D)  Godfrey should not have reported the income in 2015 because of the contingencies.
E)  None of the above.F) A) and C)
G) B) and C)

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)  The year-end must be the same day of the week in all years.
B)  The year cannot contain more than 366 calendar days.
C)  Every four years,there will be only 51 weeks.
D)  The year cannot end on a Sunday.
E)  None of the above.F) C) and D)
G) All of the above

Question 4

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:

Accepted Answer

A)  $20,500 in 2016
B)  $18,000 in 2015 and $2,500 in 2016.
C)  $20,000 in 2015 and $500 in 2016.
D)  $20,500 in 2016.
E)  None of the above.F) A) and D)
G) C) and D)

Question 5

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

Accepted Answer

A)  From long-term construction contracts.
B)  Earned by an incorporated public accounting firm with gross receipts in excess of $5 million.
C)  Earned by a partnership that has a partner that is an S corporation.
D)  A grocery store with average annual gross receipts of $800,000.
E)  None of the above.F) A) and E)
G) A) and D)

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

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.

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) C) and D)

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

A C corporation is required to annualize its income:

Accepted Answer

A)  The first year the corporation is in existence,if the first tax return includes less than 12 months.
B)  The last year the corporation is in existence.
C)  The year the corporation changes its tax year.
D)  When there has been a greater than 50% change in the ownership of the stock.
E)  All of the above.F) A) and B)
G) All of the above

Question 10

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) C) and D)
G) None of the above

Question 11

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?

Accepted Answer

A)  A C corporation formed by medical doctors to conduct their practice.
B)  A C corporation that is in the retail grocery business.
C)  A real estate partnership.
D)  An S corporation engaged in manufacturing.
E)  All of the above have the same options.F) B) and D)
G) None of the above

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A)  The corporation salary expense for the fiscal year ending September 30,2016 is limited to $120,000.
B)  The corporation salary expense for the fiscal year ending September 30,2016 is limited to $135,000.
C)  The corporation salary expense for the fiscal year ending September 30,2016 is limited to $60,000.
D)  The corporation must switch to a calendar year.
E)  None of the above.F) B) and C)
G) C) and D)

Question 15

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

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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.

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) A) and D)
G) B) and E)

Question 18

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

Accepted Answer

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

Question 19

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.

Accepted Answer

A)  The farm must report its sales and cost of goods sold by the accrual method because inventories are material to the business.
B)  The income from the farm may be reported by the cash method.
C)  The income from the sales of cattle may be reported by the cash method,but the income from the sales of corn must be reported by the accrual method.
D)  The income from the sales of corn may be reported by the cash method,but the income from cattle sales must be reported by the accrual method.
E)  None of the above.F) A) and B)
G) A) and E)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 16: Accounting Periods and Methods

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

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

Correct Answer
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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.

Correct Answer
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Correct Answer
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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.

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

Correct Answer
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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.

Correct Answer
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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?

Correct Answer
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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.

Correct Answer
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Correct Answer
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Correct Answer
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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.

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

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

Correct Answer
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A C corporation is required to annualize its income:

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

Correct Answer
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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

Correct Answer
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Exam 16: Accounting Periods and Methods

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A C corporation is required to annualize its income:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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