Question 1

A business uses the same inventory method for both financial reporting and tax reporting.Because of the UNICAP requirement,ending inventory is likely to be

Accepted Answer

A) higher for tax reporting purposes than for financial reporting purposes. 
B) higher for financial reporting purposes than for tax reporting purposes. 
C) the same for both financial and tax reporting as UNICAP requires uniform inventory accounting methods. 
D) None of the above. 
A) higher for tax reporting purposes than for financial reporting purposes. 
B) higher for financial reporting purposes than for tax reporting purposes. 
C) the same for both financial and tax reporting as UNICAP requires uniform inventory accounting methods. 
D) None of the above.

Question 2

The uniform capitalization rules (UNICAP)require the capitalization of some overhead costs that are expensed for financial accounting purposes.

Accepted Answer

A) True 
 B)False

Question 3

Marissa sold stock of a non-publicly traded corporation with an adjusted basis of $36,000 for $48,000.Marissa received a down payment of $12,000 with the balance due in equal payments over the next two years.
a.What is the amount of gross profit to be recognized in the year of sale?
b.Assume that the buyer defaulted on the final payment.Marissa sued and was able to repossess the stock.The fair market value of the stock on the date of repossession is $36,000; legal fees were $1,500.What is the gain or loss on the repossession?

Accepted Answer

The answer of Marissa sold stock of a non-publicly traded...

Question 4

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 5

Xerxes Manufacturing,in its first year of operations,produces solar panels which are sold through large building supply and home improvement stores.Xerxes' year-end results include the following:
   You are preparing Xerxes' first year tax return.Xerxes has elected a calendar year as its tax accounting period and the accrual method.What additional information would you need to prepare the tax return?

Accepted Answer

You need to allocate production costs be

Question 6

An S corporation elects a September 30 taxable year.The S corporation,as a pass-through entity,does not need to make tax payments to the IRS.

Accepted Answer

A) True 
 B)False

Question 7

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 8

A taxpayer is selling land held for investment purposes.Payments will be received under the terms of a five-year installment note.Which of the following circumstances would suggest consideration of an election out of the installment method?

Accepted Answer

A) A taxpayer currently works full-time but next year will start a two-year leave from work while pursuing an MBA degree. 
B) A taxpayer has a substantial capital loss carryforward. 
C) A taxpayer plans to reduce her employment to part-time next year when she has her first child.She believes she will continue part-time until the child starts kindergarten. 
D) Installment sale treatment is mandatory. 
A) A taxpayer currently works full-time but next year will start a two-year leave from work while pursuing an MBA degree. 
B) A taxpayer has a substantial capital loss carryforward. 
C) A taxpayer plans to reduce her employment to part-time next year when she has her first child.She believes she will continue part-time until the child starts kindergarten. 
D) Installment sale treatment is mandatory.

Question 9

Tonya sold publicly traded stock with an adjusted basis of $76,000 for $90,000.Tonya received a down payment of $15,000 with the balance due in equal payments over the next four years.What is the amount of gross profit to be recognized in the year of sale?

Accepted Answer

The installment method does no

Question 10

In 2017,Richard's Department Store changes its inventory method from FIFO to LIFO.Richard's uses the simplified LIFO method.Richard's year-end inventory under FIFO is as follows: 2016 - $300,000; 2017 - $350,000.The 2016 price index is 110% and the 2017 index is 120%.The 2017 layer is

Accepted Answer

A) $19,097. 
B) $20,833. 
C) $22,727. 
D) $50,000. 
A) $19,097. 
B) $20,833. 
C) $22,727. 
D) $50,000.

Question 11

Freida is an accrual-basis taxpayer who owns a furniture store.The furniture store had the following sales of inventory:   For tax purposes,Freida should report gross profit for 2017 of

Accepted Answer

A) $40,000. 
B) $65,000. 
C) $90,000. 
D) $125,000. 
A) $40,000. 
B) $65,000. 
C) $90,000. 
D) $125,000.

Question 12

For income tax purposes,a taxpayer must use the same accounting method,either percentage of completion or completed contract method,for all long-term contracts in the same trade or business.

Accepted Answer

A) True 
 B)False

Question 13

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 year 1 are $900,000 and year 2's actual costs are $1,100,000.Under the percentage of completion method year 1's gross profit 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 14

What is the significance of the Thor Power Tool Co.case?

Accepted Answer

In Thor Power Tool Co. ,the company wrot

Question 15

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 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 16

Emily made the following interest free loans to her children:
(1)$10,000 to Erin for a down payment on a new home.Her net investment income for the year is $1,300.
(2)$50,000 to Sasha to purchase stock.Her net investment income for the year is $800.
(3)$60,000 to Tim to purchase a new boat.His net investment income for the year is $2,800.
The applicable federal interest rate on similar loans is 5%.What is the amount of interest income that Emily must report from these transactions?

Accepted Answer

The total interest income is $2,800:
(1)

Question 17

Bergeron is a local manufacturer of off-shore drilling platforms.This year,Bergeron entered into a contract to construct a drilling platform,which will be placed in the North Atlantic Ocean.The total contract price is $5,000,000,and Bergeron estimates the total construction cost at $2,000,000.Actual costs incurred this year are $600,000.If Bergeron uses the completed contract method,the gross profit for this year is

Accepted Answer

A) $0. 
B) $400,000. 
C) $600,000. 
D) $2,000,000. 
A) $0. 
B) $400,000. 
C) $600,000. 
D) $2,000,000.

Question 18

A taxpayer sells a parcel of land on the installment sale basis and will recognize the gain over the five-year installment schedule.Form 6252 must be included with his tax return only in the year of sale.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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 year 1 are $900,000 and year 2's actual costs are $1,100,000.Under the percentage of completion method year 2's gross profit is

Accepted Answer

A) $150,000. 
B) $500,000. 
C) $700,000. 
D) $350,000. 
A) $150,000. 
B) $500,000. 
C) $700,000. 
D) $350,000.

Exam 27: Accounting Periods and Methods

A business uses the same inventory method for both financial reporting and tax reporting.Because of the UNICAP requirement,ending inventory is likely to be

The uniform capitalization rules (UNICAP)require the capitalization of some overhead costs that are expensed for financial accounting purposes.

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

An S corporation elects a September 30 taxable year.The S corporation,as a pass-through entity,does not need to make tax payments to the IRS.

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.

A taxpayer is selling land held for investment purposes.Payments will be received under the terms of a five-year installment note.Which of the following circumstances would suggest consideration of an election out of the installment method?

Tonya sold publicly traded stock with an adjusted basis of $76,000 for $90,000.Tonya received a down payment of $15,000 with the balance due in equal payments over the next four years.What is the amount of gross profit to be recognized in the year of sale?

In 2017,Richard's Department Store changes its inventory method from FIFO to LIFO.Richard's uses the simplified LIFO method.Richard's year-end inventory under FIFO is as follows: 2016 - $300,000; 2017 - $350,000.The 2016 price index is 110% and the 2017 index is 120%.The 2017 layer is

Freida is an accrual-basis taxpayer who owns a furniture store.The furniture store had the following sales of inventory: For tax purposes,Freida should report gross profit for 2017 of

For income tax purposes,a taxpayer must use the same accounting method,either percentage of completion or completed contract method,for all long-term contracts in the same trade or business.

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 year 1 are $900,000 and year 2's actual costs are $1,100,000.Under the percentage of completion method year 1's gross profit is

What is the significance of the Thor Power Tool Co.case?

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 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

A taxpayer sells a parcel of land on the installment sale basis and will recognize the gain over the five-year installment schedule.Form 6252 must be included with his tax return only in the year of sale.

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 year 1 are $900,000 and year 2's actual costs are $1,100,000.Under the percentage of completion method year 2's gross profit is

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