Exam 27: Accounting Periods and Methods

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

In 2017,Modern Construction Company entered into a contract to construct a building for $5,000,000.The estimated cost to complete the building is $4,000,000 and the project will be completed in 2018.Modern incurred actual construction costs of $1,600,000 and $1,800,000 in 2017 and 2018,respectively.How much gross profit is recognized using the percentage-of-completion method in 2017 and 2018?

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

An installment sale is best defined as

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

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.

A partnership must generally use the same tax year as that 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.

This year,John purchased property from William by assuming an existing mortgage of $40,000 and agreed to pay an additional $60,000,plus interest,in the 3 years following the year of sale (i.e.$20,000 annual payments for three years,plus interest).William had an adjusted basis of $44,000 in the building.What are the sales price and the contract price in this transaction?

A fiscal year is a 12-month period that ends on the last day of any month other than December.

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

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.

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

A taxpayer's tax year must coincide with the year used to keep the taxpayer's books and records.

This year,Hamilton,a local manufacturer of off-shore drilling platforms,entered into a contract to construct a drilling platform that will be placed in the North Atlantic Ocean.The total contract price is $5,000,000,and Hamilton estimates the total construction cost at $3,000,000.Actual costs incurred this year are $600,000.If Hamilton uses the percentage of completion method,the gross profit for this year is

Which of the following partnerships can elect the cash-basis method of accounting?

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

Andrew sold land to Becca,Andrew's daughter.The fair market value of the land was $300,000 (basis $250,000).Becca agreed to pay Andrew $300,000 over 8 years.Becca immediately sold the land to Olga for $300,000 cash.The gain of $50,000 must be recognized

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

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