Exam 16: Accounting Periods and Methods

A C corporation is required to annualize certain tax factors:

When a taxpayer with average annual gross receipts in excess of $25 million finances the construction of its building by borrowing, the interest is added to the cost of the building.

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

Father sold land to Son for $500,000 in 2019. Father's basis in the land was $100,000. Son paid Father $50,000 and gave Father a note for $450,000 due in 2022. In 2020, Son sold the land for $600,000 cash. The note bore interest at the appropriate Federal rate and both Father and Son held the land as an investment.

Gray Company, a calendar year taxpayer, allows customers to return defective merchandise for a full refund within 30 days of the purchase. In 2019, the company refunded $400,000 for claims involving sales. The $400,000 consisted of $350,000 in refunds from 2019 sales and $50,000 in refunds from 2018 sales. All of the refunds from 2018 sales were for claims filed in 2018 and were paid in January and February 2019. At the end of 2019, the company had $12,000 in refund claims for sales in 2019 for which payment had been approved. These claims were paid in January 2019. Also in January 2020, the company received an additional $30,000 in claims for sales in 2019. This $30,000 was paid by Gray in February 2020. With respect to the above, Gray can deduct:

A C corporation's selection of a tax year generally is independent of the tax year of its principal shareholders.