Question 1

For tax purposes,the lower of cost or market method must ordinarily be applied to each separate inventory item.

Accepted Answer

A) True 
 B)False

Question 2

Under the accrual method of accounting,the two tests to determine when income must be reported and expenses deducted are the all-events test and the economic performance test.

Accepted Answer

A) True 
 B)False

Question 3

Points paid on a mortgage to buy a personal residence are deductible in the year paid.

Accepted Answer

A) True 
 B)False

Question 4

An installment sale is best defined as

Accepted Answer

A) any disposition of property in which at least three payments are received. 
B) any disposition of property in which the installment method is elected by the taxpayer. 
C) any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs. 
D) any disposition of publicly traded securities or inventory where at least one payment is received after the close of the taxable year in which disposition occurs. 
A) any disposition of property in which at least three payments are received. 
B) any disposition of property in which the installment method is elected by the taxpayer. 
C) any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs. 
D) any disposition of publicly traded securities or inventory where at least one payment is received after the close of the taxable year in which disposition occurs.

Question 5

A taxpayer who uses the LIFO method of inventory valuation may use the lower of cost or market method.

Accepted Answer

A) True 
 B)False

Question 6

The look-back interest adjustment involves the

Accepted Answer

A) calculation of interest on an installment sale. 
B) calculation of gross profit on an installment sale collection. 
C) calculation of additional tax due if actual cost rather than estimated cost had been used on the percentage of completion method. 
D) calculation of interest on additional tax that would have been due if actual cost rather than estimated cost had been used on the percentage of completion method. 
A) calculation of interest on an installment sale. 
B) calculation of gross profit on an installment sale collection. 
C) calculation of additional tax due if actual cost rather than estimated cost had been used on the percentage of completion method. 
D) calculation of interest on additional tax that would have been due if actual cost rather than estimated cost had been used on the percentage of completion method.

Question 7

CPA Associates,a cash-basis partnership with a calendar tax year,signs a contract for a 30-month subscription to an online tax research service,effective as of November 1.The firm pays the full $15,000 subscription bill on the November 1,2019 subscription start date.For 2019 the firm can deduct

Accepted Answer

A) $1,000. 
B) $15,000. 
C) $7,500. 
D) $2,000. 
A) $1,000. 
B) $15,000. 
C) $7,500. 
D) $2,000.

Question 8

Owners of pass-through entities may defer income recognition by selecting a different tax year for the business if at least 25% of the business revenues occur during the last two months of the proposed year.

Accepted Answer

A) True 
 B)False

Question 9

Advance approval and the filing of Form 970 is required whenever a taxpayer adopts LIFO.

Accepted Answer

A) True 
 B)False

Question 10

A new business is established.It is not a seasonal business.All of the following are acceptable accounting tax years with the exception of

Accepted Answer

A) an S corporation year ending October 31. 
B) a C corporation (not a personal service corporation)tax year ending on February 15. 
C) a C corporation (not a personal service corporation)tax year ending on April 30. 
D) a partnership tax year ending on October 31 with three equal partners whose tax years end on September 30,October 31,and November 30. 
A) an S corporation year ending October 31. 
B) a C corporation (not a personal service corporation)tax year ending on February 15. 
C) a C corporation (not a personal service corporation)tax year ending on April 30. 
D) a partnership tax year ending on October 31 with three equal partners whose tax years end on September 30,October 31,and November 30.

Question 11

Individual taxpayers who change from one accounting period to another must annualize their income for the resulting short period.

Accepted Answer

A) True 
 B)False

Question 12

A taxpayer may use a combination of accounting methods as long as income is clearly reflected.

Accepted Answer

A) True 
 B)False

Question 13

A taxpayer may use the FIFO or average cost methods for financial statement purposes,while using the LIFO method for tax purposes.

Accepted Answer

A) True 
 B)False

Question 14

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 $1,300,000.Under the completed contract method the gross profit for Year 2 is

Accepted Answer

A) $0. 
B) $300,000. 
C) $350,000. 
D) $700,000. 
A) $0. 
B) $300,000. 
C) $350,000. 
D) $700,000.

Question 15

On September 2 of this year,Keshawn sold land to Rex,his nephew,for $400,000.Keshawn's basis in the land was $100,000.Rex agreed to pay his uncle $40,000 this year,and $60,000 each year for the next six years plus interest.One month later,Rex sold the land to Theo,an unrelated party,for $450,000.Based on this information,Keshawn must report

Accepted Answer

A) $0.Rex reports gain of $300,000. 
B) gain of $225,000 this year. 
C) gain of $225,000 this year plus interest in following six years. 
D) gain of $30,000 this year,and gain in each of the following six years of $45,000 plus interest. 
A) $0.Rex reports gain of $300,000. 
B) gain of $225,000 this year. 
C) gain of $225,000 this year plus interest in following six years. 
D) gain of $30,000 this year,and gain in each of the following six years of $45,000 plus interest.

Question 16

All of the following transactions are exempt from rules regarding imputed interest with the exception of

Accepted Answer

A) taxpayer purchases newly issued bond for $700 (face value of $1,000). 
B) taxpayer sells land for $135,000 with payment due in 5 years and no stated interest. 
C) taxpayer sells his home gym equipment for $2,800 with payment due in one year and no stated interest. 
D) taxpayer purchases a sailboat costing $2,500 for weekend boating trips; the full price payable in five months and no stated interest. 
A) taxpayer purchases newly issued bond for $700 (face value of $1,000). 
B) taxpayer sells land for $135,000 with payment due in 5 years and no stated interest. 
C) taxpayer sells his home gym equipment for $2,800 with payment due in one year and no stated interest. 
D) taxpayer purchases a sailboat costing $2,500 for weekend boating trips; the full price payable in five months and no stated interest.

Question 17

If the majority of the partners do not have the same tax year,the partnership must use the tax year of its principal partners.

Accepted Answer

A) True 
 B)False

Question 18

A taxpayer who uses the cash method in computing gross income from his or her business must use the cash method in computing expenses of such business.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following conditions are required for the use of the installment method?

Accepted Answer

A) The taxpayer must realize a gain on the sale of the property. 
B) The taxpayer cannot be on the cash method. 
C) The value of the obligations received is determinable at the date of sale. 
D) All of the above are required. 
A) The taxpayer must realize a gain on the sale of the property. 
B) The taxpayer cannot be on the cash method. 
C) The value of the obligations received is determinable at the date of sale. 
D) All of the above are required.

Question 20

An accrual basis taxpayer wishes to take advantage of the recurring item exception to the economic performance requirement in order to accelerate a deduction.Which of the following is not correct regarding the taxpayer's ability to apply the recurring item exception?

Accepted Answer

A) The independent all-events test need not be satisfied. 
B) Payment is made within 8.5 months after the close of the tax year. 
C) The taxpayer consistently treats similar items meeting these criteria in the same manner. 
D) The amount is immaterial or the accelerated deduction results in better matching of income and expense. 
A) The independent all-events test need not be satisfied. 
B) Payment is made within 8.5 months after the close of the tax year. 
C) The taxpayer consistently treats similar items meeting these criteria in the same manner. 
D) The amount is immaterial or the accelerated deduction results in better matching of income and expense.

Exam 27: Accounting Periods and Methods

For tax purposes,the lower of cost or market method must ordinarily be applied to each separate inventory item.

Under the accrual method of accounting,the two tests to determine when income must be reported and expenses deducted are the all-events test and the economic performance test.

Points paid on a mortgage to buy a personal residence are deductible in the year paid.

An installment sale is best defined as

A taxpayer who uses the LIFO method of inventory valuation may use the lower of cost or market method.

The look-back interest adjustment involves the

CPA Associates,a cash-basis partnership with a calendar tax year,signs a contract for a 30-month subscription to an online tax research service,effective as of November 1.The firm pays the full $15,000 subscription bill on the November 1,2019 subscription start date.For 2019 the firm can deduct

Owners of pass-through entities may defer income recognition by selecting a different tax year for the business if at least 25% of the business revenues occur during the last two months of the proposed year.

Advance approval and the filing of Form 970 is required whenever a taxpayer adopts LIFO.

A new business is established.It is not a seasonal business.All of the following are acceptable accounting tax years with the exception of

Individual taxpayers who change from one accounting period to another must annualize their income for the resulting short period.

A taxpayer may use a combination of accounting methods as long as income is clearly reflected.

A taxpayer may use the FIFO or average cost methods for financial statement purposes,while using the LIFO method for tax purposes.

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 $1,300,000.Under the completed contract method the gross profit for Year 2 is

All of the following transactions are exempt from rules regarding imputed interest with the exception of

If the majority of the partners do not have the same tax year,the partnership must use the tax year of its principal partners.

A taxpayer who uses the cash method in computing gross income from his or her business must use the cash method in computing expenses of such business.

Which of the following conditions are required for the use of the installment method?

An accrual basis taxpayer wishes to take advantage of the recurring item exception to the economic performance requirement in order to accelerate a deduction.Which of the following is not correct regarding the taxpayer's ability to apply the recurring item exception?

Tax Research

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The Corporate Income Tax

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Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

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