Question 1

When preparing a tax return for a short period,the taxpayer should annualize the income if the short period return

Accepted Answer

A) is the last return for a decedent who died on June 15. 
B) is the first return for a corporation created on June 1. 
C) is the last return for a partnership,which was terminated on October 12. 
D) None of the above situations require annualization of income for the short period return. 
A) is the last return for a decedent who died on June 15. 
B) is the first return for a corporation created on June 1. 
C) is the last return for a partnership,which was terminated on October 12. 
D) None of the above situations require annualization of income for the short period return. D

Question 2

Contracts for services including accounting,legal and architectural services do not qualify for long-term contract treatment.

Accepted Answer

A) True 
 B)False  True

Question 3

When a new business is formed,it must request approval from the IRS regarding the adoption of its various accounting methods.

Accepted Answer

A) True 
 B)False  False

Question 4

A taxpayer does not have to impute interest on a receivable from sales if payment is to be made within six months.

Accepted Answer

A) True 
 B)False

Question 5

Misha,a single taxpayer,died on July 31,2019.Her final income tax return (ignoring extensions)is due November 15,2019.

Accepted Answer

A) True 
 B)False

Question 6

An improper election to use a fiscal year automatically places the taxpayer on the calendar year.

Accepted Answer

A) True 
 B)False

Question 7

Andrew sold land to Becca,Andrew's daughter.The fair market value of the land was $300,000 (basis $250,000).Becca agreed to pay Andrew $300,000 over 8 years.Becca immediately sold the land to Olga for $300,000 cash.The gain of $50,000 must be recognized

Accepted Answer

A) by Becca in installments. 
B) by Becca when Becca sells to Olga. 
C) by Andrew when Andrew sells to Becca. 
D) by Andrew when Becca sells to Olga. 
A) by Becca in installments. 
B) by Becca when Becca sells to Olga. 
C) by Andrew when Andrew sells to Becca. 
D) by Andrew when Becca sells to Olga.

Question 8

This year,John purchased property from William by assuming an existing mortgage of $40,000 and agreed to pay an additional $60,000,plus interest,in the 3 years following the year of sale (i.e.,$20,000 annual payments for three years,plus interest).William had an adjusted basis of $44,000 in the building.What are the sales price and the contract price in this transaction?

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline \text { Sales Price } & \text { Contract Price } \
\hline \$ 40,000 & \$ 60,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Sales Price } & \text { Contract Price } \
\hline \$ 100,000 & \$ 40,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Sales Price } & \text { Contract Price } \
\hline \$ 100,000 & \$ 60,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Sales Price } & \text { Contract Price } \
\hline \$ 100,000 & \$ 100,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | } 
\hline \text { Sales Price } & \text { Contract Price } \
\hline \$ 40,000 & \$ 60,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Sales Price } & \text { Contract Price } \
\hline \$ 100,000 & \$ 40,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Sales Price } & \text { Contract Price } \
\hline \$ 100,000 & \$ 60,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Sales Price } & \text { Contract Price } \
\hline \$ 100,000 & \$ 100,000 \
\hline
\end{array}$$

Question 9

A taxpayer is selling land held for investment purposes.Payments will be received under the terms of a five-year installment note.Which of the following circumstances would suggest consideration of an election out of the installment method?

Accepted Answer

A) A taxpayer currently works full-time but next year will start a two-year leave from work while pursuing an MBA degree. 
B) A taxpayer has a substantial capital loss carryforward. 
C) A taxpayer plans to reduce her employment to part-time next year when she has her first child.She believes she will continue part-time until the child starts kindergarten. 
D) Installment sale treatment is mandatory. 
A) A taxpayer currently works full-time but next year will start a two-year leave from work while pursuing an MBA degree. 
B) A taxpayer has a substantial capital loss carryforward. 
C) A taxpayer plans to reduce her employment to part-time next year when she has her first child.She believes she will continue part-time until the child starts kindergarten. 
D) Installment sale treatment is mandatory.

Question 10

Malea sold a machine for $140,000.The machine originally cost $90,000 and $10,000 of MACRS depreciation had been allowable.The buyer assumed an existing loan of $40,000,paid $20,000 cash down and agreed to pay $10,000 per year for eight years plus interest.Selling expenses are $10,000.The contract price is

Accepted Answer

A) $40,000. 
B) $80,000. 
C) $100,000. 
D) $130,000. 
A) $40,000. 
B) $80,000. 
C) $100,000. 
D) $130,000.

Question 11

This year,Hamilton,a local manufacturer of off-shore drilling platforms,entered into a contract to construct a drilling platform that will be placed in the North Atlantic Ocean.The total contract price is $5,000,000,and Hamilton estimates the total construction cost at $3,000,000.Actual costs incurred this year are $600,000.If Hamilton uses the percentage of completion method,the gross profit for this year is

Accepted Answer

A) $0. 
B) $400,000. 
C) $600,000. 
D) $2,000,000. 
A) $0. 
B) $400,000. 
C) $600,000. 
D) $2,000,000.

Question 12

The uniform capitalization rules (UNICAP)require the capitalization of some overhead costs that are expensed for financial accounting purposes.

Accepted Answer

A) True 
 B)False

Question 13

An S corporation elects a September 30 taxable year.The S corporation,as a pass-through entity,does not need to make tax payments to the IRS.

Accepted Answer

A) True 
 B)False

Question 14

If Jett Corporation receives a charter in 2017 but does not begin operations and file its first tax return until 2019,Jett may elect a fiscal year on the 2019 return.

Accepted Answer

A) True 
 B)False

Question 15

A fiscal year is a 12-month period that ends on the last day of any month other than December.

Accepted Answer

A) True 
 B)False

Question 16

In 2019,Richard's Department Store changes its inventory method from FIFO to LIFO.Richard's uses the simplified LIFO method.Richard's year-end inventory under FIFO is as follows: 2018 - $300,000; 2019 - $350,000.The 2018 price index is 110% and the 2019 index is 120%.The 2019 layer is

Accepted Answer

A) $19,097. 
B) $20,833. 
C) $22,727. 
D) $50,000. 
A) $19,097. 
B) $20,833. 
C) $22,727. 
D) $50,000.

Question 17

On June 11 of last year,Derrick sold land with a cost of $15,000 for $45,000.Derrick collected $20,000 last year and is scheduled to receive $5,000 each year for five years starting this year plus an acceptable rate of interest.Derrick receives the $5,000 installment required this year.Derrick's recognized gain this year is

Accepted Answer

A) $0. 
B) $1,667. 
C) $3,333. 
D) $5,000. 
A) $0. 
B) $1,667. 
C) $3,333. 
D) $5,000.

Question 18

On July 25 of this year,Raj sold land with a cost of $15,000 for $40,000.Raj collected $20,000 this year and is scheduled to receive $5,000 each year for four years starting next year plus an acceptable rate of interest.Raj's gain recognized this year is

Accepted Answer

A) $7,500. 
B) $12,500. 
C) $20,000. 
D) $25,000. 
A) $7,500. 
B) $12,500. 
C) $20,000. 
D) $25,000.

Question 19

The installment sale method can be used for all of the following transactions except

Accepted Answer

A) the sale of an antique by a collector. 
B) the sale of shares of publicly traded corporate stock. 
C) the sale of farmland used in a farming business. 
D) the sale of a boat held for personal use. 
A) the sale of an antique by a collector. 
B) the sale of shares of publicly traded corporate stock. 
C) the sale of farmland used in a farming business. 
D) the sale of a boat held for personal use.

Question 20

Which of the following partnerships can use the cash method of accounting?

Accepted Answer

A) a CPA firm with average revenues of $30 million 
B) a chocolate manufacturer with average revenues of $30 million 
C) Both of the partnerships can elect the cash method of accounting. 
D) Neither of the partnerships can elect the cash method of accounting. 
A) a CPA firm with average revenues of $30 million 
B) a chocolate manufacturer with average revenues of $30 million 
C) Both of the partnerships can elect the cash method of accounting. 
D) Neither of the partnerships can elect the cash method of accounting.

Exam 27: Accounting Periods and Methods

When preparing a tax return for a short period,the taxpayer should annualize the income if the short period return

Contracts for services including accounting,legal and architectural services do not qualify for long-term contract treatment.

When a new business is formed,it must request approval from the IRS regarding the adoption of its various accounting methods.

A taxpayer does not have to impute interest on a receivable from sales if payment is to be made within six months.

Misha,a single taxpayer,died on July 31,2019.Her final income tax return (ignoring extensions)is due November 15,2019.

An improper election to use a fiscal year automatically places the taxpayer on the calendar year.

Andrew sold land to Becca,Andrew's daughter.The fair market value of the land was $300,000 (basis $250,000).Becca agreed to pay Andrew $300,000 over 8 years.Becca immediately sold the land to Olga for $300,000 cash.The gain of $50,000 must be recognized

A taxpayer is selling land held for investment purposes.Payments will be received under the terms of a five-year installment note.Which of the following circumstances would suggest consideration of an election out of the installment method?

The uniform capitalization rules (UNICAP)require the capitalization of some overhead costs that are expensed for financial accounting purposes.

An S corporation elects a September 30 taxable year.The S corporation,as a pass-through entity,does not need to make tax payments to the IRS.

If Jett Corporation receives a charter in 2017 but does not begin operations and file its first tax return until 2019,Jett may elect a fiscal year on the 2019 return.

A fiscal year is a 12-month period that ends on the last day of any month other than December.

In 2019,Richard's Department Store changes its inventory method from FIFO to LIFO.Richard's uses the simplified LIFO method.Richard's year-end inventory under FIFO is as follows: 2018 - $300,000; 2019 - $350,000.The 2018 price index is 110% and the 2019 index is 120%.The 2019 layer is

On July 25 of this year,Raj sold land with a cost of $15,000 for $40,000.Raj collected $20,000 this year and is scheduled to receive $5,000 each year for four years starting next year plus an acceptable rate of interest.Raj's gain recognized this year is

The installment sale method can be used for all of the following transactions except

Which of the following partnerships can use the cash method of accounting?

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