Question 1

When accounting for long-term contracts (other than those for services),all of the following accounting methods may be acceptable with the exception of

Accepted Answer

A) the allocated completion method of accounting. 
B) the completed contract method. 
C) the percentage of completion method. 
D) the modified percentage of completion method. 
A) the allocated completion method of accounting. 
B) the completed contract method. 
C) the percentage of completion method. 
D) the modified percentage of completion method.

Question 2

Under the percentage of completion method,gross income is reported

Accepted Answer

A) when the contract is completed. 
B) using a percentage that is determined by dividing current year costs by the expected total revenue. 
C) based on the portion of work that is incomplete. 
D) based on the portion of work that has been completed. 
A) when the contract is completed. 
B) using a percentage that is determined by dividing current year costs by the expected total revenue. 
C) based on the portion of work that is incomplete. 
D) based on the portion of work that has been completed.

Question 3

Under the cash method of accounting,all of the following are true with the exception of

Accepted Answer

A) fixed assets are always expensed as the taxpayer pays for the assets. 
B) gross income includes the value of property received. 
C) to some extent,a taxpayer may control the year in which an expense is deductible by choosing when to make the payment. 
D) income is reported in the tax year in which payments are actually or constructively received. 
A) fixed assets are always expensed as the taxpayer pays for the assets. 
B) gross income includes the value of property received. 
C) to some extent,a taxpayer may control the year in which an expense is deductible by choosing when to make the payment. 
D) income is reported in the tax year in which payments are actually or constructively received.

Question 4

Kevin sold property with an adjusted basis of $58,000.The buyer assumed Kevin's existing mortgage of $40,000 and agreed to pay an additional $60,000 consisting of a cash down payment of $40,000,and payments of $4,000,plus interest,per year for the next 5 years.Kevin paid selling expenses totaling $2,000.What is Kevin's gross profit percentage?

Accepted Answer

A) 33 1/3% 
B) 40% 
C) 60% 
D) 66 2/3% 
A) 33 1/3% 
B) 40% 
C) 60% 
D) 66 2/3%

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

Misha,a single taxpayer,died on July 31,2017.Her final income tax return (ignoring extensions)is due November 15,2017.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

A taxpayer may use the FIFO or average cost methods for financial statement purposes,while using the LIFO method for tax purposes.

Accepted Answer

A) True 
 B)False

Question 10

The installment sale method may be used on the sale of property at a loss.

Accepted Answer

A) True 
 B)False

Question 11

All of the following transactions are exempt from rules regarding imputed interest with the exception of

Accepted Answer

A) taxpayer purchases newly issued bond for $700 (face value of $1,000). 
B) taxpayer sells land for $135,000 with payment due in 5 years and no stated interest. 
C) taxpayer sells his home gym equipment for $2,800 with payment due in one year and no stated interest. 
D) taxpayer purchases a sailboat costing $2,500 for weekend boating trips; the full price payable in five months and no stated interest. 
A) taxpayer purchases newly issued bond for $700 (face value of $1,000). 
B) taxpayer sells land for $135,000 with payment due in 5 years and no stated interest. 
C) taxpayer sells his home gym equipment for $2,800 with payment due in one year and no stated interest. 
D) taxpayer purchases a sailboat costing $2,500 for weekend boating trips; the full price payable in five months and no stated interest.

Question 12

Emma,a single taxpayer,obtains permission to change from a calendar year to a fiscal year ending June 30,2017.During the six months ending June 30,2017,she earns $40,000 and has $8,000 of itemized deductions.What is the amount of her annualized income?

Accepted Answer

A) $29,975 
B) $64,000 
C) $59,950 
D) $55,900 
A) $29,975 
B) $64,000 
C) $59,950 
D) $55,900

Question 13

Points paid on a mortgage to buy a personal residence are deductible in the year paid.

Accepted Answer

A) True 
 B)False

Question 14

On May 18,of last year,Yuji sold non-publicly traded stock with a cost of $12,000 for $30,000.Yuji collected $10,000 initially and is scheduled to receive $5,000 each year for four years starting this year plus an acceptable rate of interest.After receiving the first scheduled $5,000 payment,Yuji was unable to collect any further payments.After incurring legal fees of $500,Yuji recovered a portion of the stock valued at $13,000.Yuji's basis in the recovered stock is

Accepted Answer

A) $6,500. 
B) $7,000. 
C) $12,500. 
D) $13,000. 
A) $6,500. 
B) $7,000. 
C) $12,500. 
D) $13,000.

Question 15

The installment sale method can be used for all of the following transactions except

Accepted Answer

A) the sale of an antique by a collector. 
B) the sale of shares of publicly traded corporate stock. 
C) the sale of farmland used in a farming business. 
D) the sale of a boat held for personal use. 
A) the sale of an antique by a collector. 
B) the sale of shares of publicly traded corporate stock. 
C) the sale of farmland used in a farming business. 
D) the sale of a boat held for personal use.

Question 16

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 ending inventory after adopting the LIFO method is

Accepted Answer

A) $350,000. 
B) $320,833. 
C) $381,818. 
D) $322,727. 
A) $350,000. 
B) $320,833. 
C) $381,818. 
D) $322,727.

Question 17

On September 2,of this year,Keshawn sold land to Rex,his nephew,for $400,000.Keshawn's basis in the land was $100,000.Rex agreed to pay his uncle $40,000 this year,and $60,000 each year for the next six years plus interest.One month later,Rex sold the land to Theo,an unrelated party,for $450,000.Based on this information,Keshawn must report

Accepted Answer

A) $0.Rex reports gain of $300,000. 
B) gain of $225,000 this year. 
C) gain of $225,000 this year plus interest in following six years. 
D) gain of $30,000 this year,and gain in each of the following six years of $45,000 plus interest. 
A) $0.Rex reports gain of $300,000. 
B) gain of $225,000 this year. 
C) gain of $225,000 this year plus interest in following six years. 
D) gain of $30,000 this year,and gain in each of the following six years of $45,000 plus interest.

Question 18

Doug is going to sell land for $100,000.The terms of the sale include $20,000 down and $20,000 plus interest for the next 4 years.He wishes to recognize income using the installment method.Both his brother and his son wish to buy the land from him.What are the tax considerations?

Accepted Answer

The proposed transaction will be treated

Question 19

All of the following statements are true except

Accepted Answer

A) once adopted,an accounting period normally cannot be changed without approval by the IRS. 
B) taxpayers who change from one accounting period to another must annualize their income for the resulting short period. 
C) taxpayers filing an initial tax return are required to annualize the year's income and prorate exemptions and credits. 
D) an existing partnership can change its tax year without prior approval if the partners with a majority interest have the same tax year to which the partnership changes. 
A) once adopted,an accounting period normally cannot be changed without approval by the IRS. 
B) taxpayers who change from one accounting period to another must annualize their income for the resulting short period. 
C) taxpayers filing an initial tax return are required to annualize the year's income and prorate exemptions and credits. 
D) an existing partnership can change its tax year without prior approval if the partners with a majority interest have the same tax year to which the partnership changes.

Question 20

Which entities may elect a fiscal year? Discuss how certain tax entities may circumvent the requirement of using a calendar year.

Accepted Answer

C corporations,other than personal servi

Exam 27: Accounting Periods and Methods

When accounting for long-term contracts (other than those for services),all of the following accounting methods may be acceptable with the exception of

Under the percentage of completion method,gross income is reported

Under the cash method of accounting,all of the following are true with the exception of

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

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

Misha,a single taxpayer,died on July 31,2017.Her final income tax return (ignoring extensions)is due November 15,2017.

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

A taxpayer may use the FIFO or average cost methods for financial statement purposes,while using the LIFO method for tax purposes.

The installment sale method may be used on the sale of property at a loss.

All of the following transactions are exempt from rules regarding imputed interest with the exception of

Emma,a single taxpayer,obtains permission to change from a calendar year to a fiscal year ending June 30,2017.During the six months ending June 30,2017,she earns $40,000 and has $8,000 of itemized deductions.What is the amount of her annualized income?

Points paid on a mortgage to buy a personal residence are deductible in the year paid.

The installment sale method can be used for all of the following transactions except

Doug is going to sell land for $100,000.The terms of the sale include $20,000 down and $20,000 plus interest for the next 4 years.He wishes to recognize income using the installment method.Both his brother and his son wish to buy the land from him.What are the tax considerations?

All of the following statements are true except

Which entities may elect a fiscal year? Discuss how certain tax entities may circumvent the requirement of using a calendar year.

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