Question 1

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. C

Question 2

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

Accepted Answer

A) True 
 B)False  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  True

Question 4

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 5

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) is a return for June 1 to December 31,for a corporation changing from a fiscal year to a calendar year. 
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) is a return for June 1 to December 31,for a corporation changing from a fiscal year to a calendar year.

Question 6

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 7

Inventory may be valued on the tax return at the lower of cost or market unless

Accepted Answer

A) replacement cost is higher than historical cost. 
B) the taxpayer determines inventory cost using the LIFO method. 
C) the taxpayer determines inventory cost using the FIFO method. 
D) the cash method of accounting is used by the taxpayer. 
A) replacement cost is higher than historical cost. 
B) the taxpayer determines inventory cost using the LIFO method. 
C) the taxpayer determines inventory cost using the FIFO method. 
D) the cash method of accounting is used by the taxpayer.

Question 8

Chana made a $75,000 interest-free loan to her son,Trey,who used the money to retire a mortgage on his personal residence.Trey's only source of income was salary of $50,000 and $940 interest income on a savings account.The relevant Federal interest rate was 5% and the loan was outstanding all year long.What amount must Chana include as interest income as a result of this transaction?

Accepted Answer

A) $3,750 
B) $940 
C) $2,810 
D) $0 
A) $3,750 
B) $940 
C) $2,810 
D) $0

Question 9

Interest is not imputed on a gift loan between two individuals totaling $14,000 except when the borrowed funds are used to purchase income-producing property.

Accepted Answer

A) True 
 B)False

Question 10

Jared wants his daughter,Jacqueline,to learn about the stock market.He loans Jacqueline $30,000,but does not require Jacqueline to pay interest.Jared tells Jacqueline that she can repay him from the proceeds of future stock sales.Discuss the tax issues that Jared should consider.

Accepted Answer

This is considered a gift loan.Jared wil

Question 11

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 12

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 13

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

Accepted Answer

A) A company producing the newest version of a tablet with ultra-long battery life.It believes it has a one-year lead over the competition. 
B) A company producing products with copper as a key component - copper prices fluctuate widely. 
C) A company producing parts for the auto industry - costs in this field tend to steadily climb. 
D) None of the above. 
A) A company producing the newest version of a tablet with ultra-long battery life.It believes it has a one-year lead over the competition. 
B) A company producing products with copper as a key component - copper prices fluctuate widely. 
C) A company producing parts for the auto industry - costs in this field tend to steadily climb. 
D) None of the above.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

A subsidiary corporation filing a consolidated return with its parent corporation must change its accounting period to conform with its parent's tax year.

Accepted Answer

A) True 
 B)False

Question 17

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 18

A taxpayer receives permission for a voluntary change in accounting method,resulting in a negative adjustment to income.The taxpayer would like to recognize the full negative adjustment in the current year in order to maximize tax savings and time value of money.In order to recognize the full adjustment this year,the adjustment must not exceed

Accepted Answer

A) $25,000. 
B) $10,000. 
C) $3,000. 
D) Adjustments must be spread over a period of two to four years. 
A) $25,000. 
B) $10,000. 
C) $3,000. 
D) Adjustments must be spread over a period of two to four years.

Question 19

Discuss the purpose of the imputed interest rules.

Accepted Answer

Prior to enactment of the imputed intere

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 27: Accounting Periods and Methods

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

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

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

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

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

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.

Inventory may be valued on the tax return at the lower of cost or market unless

Interest is not imputed on a gift loan between two individuals totaling $14,000 except when the borrowed funds are used to purchase income-producing property.

Jared wants his daughter,Jacqueline,to learn about the stock market.He loans Jacqueline $30,000,but does not require Jacqueline to pay interest.Jared tells Jacqueline that she can repay him from the proceeds of future stock sales.Discuss the tax issues that Jared should consider.

The look-back interest adjustment involves the

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

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

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

A subsidiary corporation filing a consolidated return with its parent corporation must change its accounting period to conform with its parent's tax year.

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.

Discuss the purpose of the imputed interest rules.

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

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