Exam 27: Accounting Periods and Methods

Vector Corporation has been using an incorrect method in accounting for supplies expense.It can change to the correct method without filing 3115.

Under the cash method of accounting,all of the following are true with the exception of

Kevin sold property with an adjusted basis of $58,000.The buyer assumed Kevin's existing mortgage of $40,000 and agreed to pay an additional $60,000 consisting of a cash down payment of $40,000,and payments of $4,000,plus interest,per year for the next 5 years.Kevin paid selling expenses totaling $2,000.What is Kevin's gross profit percentage?

The installment method is not applicable to sales of inventory and marketable securities.

On June 11,two years ago,Gia sold land with a cost of $15,000 for $45,000.Gia collected $20,000 initially and is scheduled to receive $5,000 each year for five years starting last year plus an acceptable rate of interest.This year,Gia decided to sell one installment note to a bank that agreed to pay $4,100.As a result of the sale of the note,Gia must report

Which of the following businesses is most likely to benefit from an election to account for its inventory under LIFO?

All C corporations can elect a tax year other than a calendar year.

In Year 1,a contractor agrees to build a building for $2,500,000 by the end of Year 2.The builder's cost is estimated to be $1,800,000.The actual costs for Year 1 are $900,000 and Year 2's actual costs are $1,100,000.Under the percentage of completion method Year 1's gross profit is

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

Interest is not imputed on a gift loan between two individuals totaling $15,000 except when the borrowed funds are used to purchase income-producing property.

An accrual of a reserve for bad debt expense by an accrual-basis taxpayer meets the standards of all-events and economic performance.

For income tax purposes,a taxpayer must use the same accounting method,either percentage of completion or completed contract method,for all long-term contracts in the same trade or business.

The all-events test requires that the accrual-basis taxpayer report income when all events have occurred that fix the taxpayer's right to the income and when the amount can be determined with reasonable accuracy.

Sela 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 total gross profit for installment sale recognition purposes is

CPA Associates,a cash-basis partnership with a calendar tax year,signs a contract for a 20-month subscription to an online tax research service,effective as of April 1.The firm pays the full $10,000 subscription bill on the April 1,2019 subscription start date.For 2019 the firm can deduct

Under the percentage of completion method,gross income is reported

Imputation of interest could be required on all of the following loans with the exception of

If a cash-basis taxpayer gives a note in payment of an expense,the deduction may not be taken until the note is paid.

When accounting for long-term contracts (other than those for services),all of the following accounting methods may be acceptable with the exception of

A partnership must generally use the same tax year as that of its principal partners.