Exam 27: Accounting Periods and Methods

An accrual of a reserve for bad debt expense by an accrual-basis taxpayer meets the standards of all-events and economic performance.

A retailing business may use the cash-basis method of accounting for purposes of determining sales and cost of goods sold if average gross receipts do not exceed $1 million.

A taxpayer who uses the LIFO method of inventory valuation may use the lower of cost or market method.

CPA Associates,a cash-basis partnership with a calendar tax year,signs a contract for a 30-month subscription to an online tax research service,effective as of November 1.The firm pays the full $15,000 subscription bill on the November 1,2017 subscription start date.For 2017 the firm can deduct

An improper election to use a fiscal year automatically places the taxpayer on the calendar year.

If Jett Corporation receives a charter in 2015 but does not begin operations and file its first tax return until 2017,Jett may elect a fiscal year on the 2017 return.

Prior Corp.plans to change its method of accounting for supplies.Both the old and new methods are acceptable.Which of the following statements is correct regarding the change?

A cash-basis taxpayer pays a bill with a credit card.The underlying expenditure is not deductible until the credit card bill is paid.

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

For tax purposes,the lower of cost or market method must ordinarily be applied to each separate inventory item.

This year,a contractor agrees to build a building for $2,000,000,which will be completed by the end of next year.The builder's cost is estimated to be $1,700,000.The actual costs this year are $800,000 and next year's actual costs are $800,000.If the tax rate is 20% and the interest rate is 10%,the look back interest for the percentage of completion method is

Natalie sold a machine for $140,000.The machine originally cost $95,000 and $15,000 of MACRS depreciation had been allowable.The buyer assumed an existing loan of $40,000,paid $30,000 cash down and agreed to pay $10,000 per year for seven years plus interest.Selling expenses are $10,000.What is the amount of gain to be reported in the year of sale?

On May 18,of last year,Carter sells unlisted stock with a cost of $24,000 for $60,000.Carter collects $20,000 initially and is scheduled to receive $10,000 each year for four years starting this year plus an acceptable rate of interest.After receiving the first $10,000 scheduled installment payment,Carter is unable to collect any further payments.After incurring legal fees of $1,000,Carter recovers a portion of the stock valued at $26,000.As a result of the repossession,Carter must report

Jennifer made interest-free gift loans to each of her four children as follows: (1)John borrowed $9,500 to purchase an automobile.His net investment income is $1,500. (2)Rick borrowed $50,000 to purchase a trailer.His net investment income is $900. (3)Bert borrowed $25,000 to purchase stock.His net investment income is $1,200. (4)Elizabeth borrowed $110,000 to purchase a home.Her net investment income is $800. Assuming a 5% interest rate,on which loans must interest be imputed?

On July 25 of this year,Raj sold land with a cost of $15,000 for $40,000.Raj collected $20,000 this year and is scheduled to receive $5,000 each year for four years starting next year plus an acceptable rate of interest.Raj's gain recognized this year is

In general,a change in accounting method must be approved by the IRS.

Which of the following statements regarding UNICAP is incorrect?

In determining taxable income,"market" for purposes of applying the lower of cost or market method means the price at which the taxpayer can sell the inventory item.

Under UNICAP,all of the following overhead costs are included in inventory except

Generally,if inventories are an income-producing factor to the business,the accrual method must be used for sales and cost of goods sold.