Question 1

For purposes of the accrual method of accounting,the economic performance test is met when

Accepted Answer

A) the property or services are actually provided. 
B) the amount of the item can be reasonably estimated. 
C) all events have occurred that establish the fact of a liability. 
D) all events have occurred that fix the taxpayer's right to receive income. 
A) the property or services are actually provided. 
B) the amount of the item can be reasonably estimated. 
C) all events have occurred that establish the fact of a liability. 
D) all events have occurred that fix the taxpayer's right to receive income.

Question 2

Under the cash method of accounting,income is reported for the tax year in which payments are actually or constructively received.

Accepted Answer

A) True 
 B)False

Question 3

A partnership must generally use the same tax year of the partners who own the majority of partnership income and capital.

Accepted Answer

A) True 
 B)False

Question 4

A cash-basis lawyer purchases an office building to use in her legal practice.To acquire the mortgage,the taxpayer must pay $5,000 in points.The taxpayer will deduct the points in the year paid.

Accepted Answer

A) True 
 B)False

Question 5

All of the following are considered related for purposes of Section 453(e)installment sales except

Accepted Answer

A) parents. 
B) children. 
C) sister. 
D) controlled corporation. 
A) parents. 
B) children. 
C) sister. 
D) controlled corporation.

Question 6

The installment method may be used for sales of all kinds of property with the exception of

Accepted Answer

A) real property. 
B) personal property. 
C) capital assets. 
D) marketable securities. 
A) real property. 
B) personal property. 
C) capital assets. 
D) marketable securities.

Question 7

Jennifer made interest-free gift loans to each of her four children as follows: (1)John borrowed $9,500 to purchase an automobile.His net investment income is $1,500.
(2)Rick borrowed $50,000 to purchase a trailer.His net investment income is $900.
(3)Bert borrowed $25,000 to purchase stock.His net investment income is $1,200.
(4)Elizabeth borrowed $110,000 to purchase a home.Her net investment income is $800.
Assuming a 5% interest rate,on which loans must interest be imputed?

Accepted Answer

A) loan to John and Bert 
B) loan to Bert and Elizabeth 
C) loan to Rick,Bert,and Elizabeth 
D) All of the loans are subject to the imputed interest rules. 
A) loan to John and Bert 
B) loan to Bert and Elizabeth 
C) loan to Rick,Bert,and Elizabeth 
D) All of the loans are subject to the imputed interest rules.

Question 8

Interest is not imputed on a gift loan between two individuals totaling $100,000 except when the borrowed funds are used to purchase income-producing property.

Accepted Answer

A) True 
 B)False

Question 9

Kyle sold land on the installment basis for $100,000.His basis in the land was $70,000.Kyle received a $40,000 down payment and a real estate installment sale contract calling for $60,000 in additional payments in future years.In addition,Kyle paid $6,000 in commissions on the sale.What is the gross profit to be recognized in the current year?

Accepted Answer

A) $0 
B) $9,600 
C) $12,000 
D) $24,000 
A) $0 
B) $9,600 
C) $12,000 
D) $24,000

Question 10

A corporation is starting to produce watches with electronic personal assistant capabilities.Generally,a business producing this type of product will want to elect the LIFO inventory method.

Accepted Answer

A) True 
 B)False

Question 11

Except in a few specific circumstances,once adopted,an accounting period may be changed without IRS approval.

Accepted Answer

A) True 
 B)False

Question 12

In determining taxable income,"market" for purposes of applying the lower of cost or market method means the price at which the taxpayer can sell the inventory item.

Accepted Answer

A) True 
 B)False

Question 13

In order to avoid the imputation of interest,the stated interest on a transaction must be at least equal to 100% of the Federal Reserve funds rate.

Accepted Answer

A) True 
 B)False

Question 14

Under the cash method of accounting,all expenses are deductible when paid.

Accepted Answer

A) True 
 B)False

Question 15

Prior Corp.plans to change its method of accounting for supplies.Both the old and new methods are acceptable.Which of the following statements is correct regarding the change?

Accepted Answer

A) The taxpayer will need to amend prior returns to reflect the new method. 
B) The taxpayer will report the full amount of change in the current tax return. 
C) The taxpayer will report the net adjustment over four years. 
D) The taxpayer will report the net adjustment and pay the tax when it files the Form 3115. 
A) The taxpayer will need to amend prior returns to reflect the new method. 
B) The taxpayer will report the full amount of change in the current tax return. 
C) The taxpayer will report the net adjustment over four years. 
D) The taxpayer will report the net adjustment and pay the tax when it files the Form 3115.

Question 16

Many taxpayers use the LIFO method of inventory valuation because during inflationary periods,LIFO normally results in the lowest valuation of ending inventory and,hence,the lowest taxable income.

Accepted Answer

A) True 
 B)False

Question 17

Rondo Construction,a calendar-year taxpayer,starts a new long-term construction project in December that is expected to last about 18 months.The project is a mall.Because of some contingencies,it is difficult to estimate total costs this early in the project.Rondo can elect to defer income recognition under the modified percentage of completion method if costs completed by year-end are less than

Accepted Answer

A) 50% of the total estimated cost. 
B) 20% of the total estimated cost. 
C) 5% of the total estimated cost. 
D) 10% of the total estimated cost. 
A) 50% of the total estimated cost. 
B) 20% of the total estimated cost. 
C) 5% of the total estimated cost. 
D) 10% of the total estimated cost.

Question 18

Which of the following statements regarding UNICAP is incorrect?

Accepted Answer

A) The UNICAP rules result in more costs being included in inventory for tax purposes than for financial accounting. 
B) Taxpayers with gross receipts averaging more than $26,000,000 or more for the prior three years must apply the UNICAP provisions. 
C) Interest must be included in inventory if the property produced is real property or long-lived property. 
D) UNICAP requires that advertising and selling costs be allocated between inventory and cost of sales. 
A) The UNICAP rules result in more costs being included in inventory for tax purposes than for financial accounting. 
B) Taxpayers with gross receipts averaging more than $26,000,000 or more for the prior three years must apply the UNICAP provisions. 
C) Interest must be included in inventory if the property produced is real property or long-lived property. 
D) UNICAP requires that advertising and selling costs be allocated between inventory and cost of sales.

Question 19

A taxpayer obtains permission to change an accounting method.The change will result in a positive adjustment to income.To help in managing its cash flow,the taxpayer would like to spread the change over multiple years.In order to take advantage of this opportunity,the net positive adjustment must exceed

Accepted Answer

A) $25,000. 
B) $3,000. 
C) $10,000. 
D) $0. 
A) $25,000. 
B) $3,000. 
C) $10,000. 
D) $0.

Question 20

A newly married person may change tax years to conform to that of his or her spouse so that a joint return may be filed.

Accepted Answer

A) True 
 B)False

Exam 27: Accounting Periods and Methods

For purposes of the accrual method of accounting,the economic performance test is met when

Under the cash method of accounting,income is reported for the tax year in which payments are actually or constructively received.

A partnership must generally use the same tax year of the partners who own the majority of partnership income and capital.

A cash-basis lawyer purchases an office building to use in her legal practice.To acquire the mortgage,the taxpayer must pay $5,000 in points.The taxpayer will deduct the points in the year paid.

All of the following are considered related for purposes of Section 453(e)installment sales except

The installment method may be used for sales of all kinds of property with the exception of

Interest is not imputed on a gift loan between two individuals totaling $100,000 except when the borrowed funds are used to purchase income-producing property.

A corporation is starting to produce watches with electronic personal assistant capabilities.Generally,a business producing this type of product will want to elect the LIFO inventory method.

Except in a few specific circumstances,once adopted,an accounting period may be changed without IRS approval.

In determining taxable income,"market" for purposes of applying the lower of cost or market method means the price at which the taxpayer can sell the inventory item.

In order to avoid the imputation of interest,the stated interest on a transaction must be at least equal to 100% of the Federal Reserve funds rate.

Under the cash method of accounting,all expenses are deductible when paid.

Prior Corp.plans to change its method of accounting for supplies.Both the old and new methods are acceptable.Which of the following statements is correct regarding the change?

Many taxpayers use the LIFO method of inventory valuation because during inflationary periods,LIFO normally results in the lowest valuation of ending inventory and,hence,the lowest taxable income.

Which of the following statements regarding UNICAP is incorrect?

A newly married person may change tax years to conform to that of his or her spouse so that a joint return may be filed.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

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Special Partnership Issues

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Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

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Losses and Bad Debts

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Property Transactions: Nontaxable Exchanges

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Special Tax Computation Methods,tax Credits,and Payment of Tax

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