Question 1

The ability of the CPA to timely prepare a tax return is a justification for the partnership's use of a particular tax year.

Accepted Answer

A) True 
 B)False

Question 2

A C corporation provides lawn maintenance services to various businesses and homeowners.The corporation has average annual gross receipts of $3,500,000.The corporation may use the cash method of accounting.

Accepted Answer

A) True 
 B)False

Question 3

​Using your knowledge of GAAP and financial reporting,list and explain one good reason why GAAP should not be used for tax purposes and one good reason why it should be used.

Accepted Answer

​Possible reasons for not using GAAP inc

Question 4

Which of the following statements is true concerning the disposition of an installment note?

Accepted Answer

A) Deferred gain is not recognized by the transferor if the installment note is a non-taxable transfer to a controlled corporation. 
B) Deferred gain must only be recognized if the installment note was transferred as a gift to a related party. 
C) Transfer of an installment obligation to another party will not trigger immediate recognition of deferred gain. 
D) Deferred gain must be recognized if the note is transferred to the owner's estate at his death. 
E) None of the above. 
A) Deferred gain is not recognized by the transferor if the installment note is a non-taxable transfer to a controlled corporation. 
B) Deferred gain must only be recognized if the installment note was transferred as a gift to a related party. 
C) Transfer of an installment obligation to another party will not trigger immediate recognition of deferred gain. 
D) Deferred gain must be recognized if the note is transferred to the owner's estate at his death. 
E) None of the above.

Question 5

Duck Company has valued its inventories at FIFO cost for the past 10 years.The
Company would like to change to the LIFO method,effective in 2017.

Accepted Answer

A) The election to change can be made with the 2017 tax return and the beginning inventory for 2017 will be the same as the FIFO inventory at the end of 2016 and no § 481 adjustment is required. 
B) The beginning inventory value for 2017 must be computed as though the company had been using LIFO in all prior years and a § 481 adjustment is required. 
C) The taxpayer must apply in 2016 for permission to change methods effective in 2017. 
D) Duck must amend all prior years' tax returns to compute income by the LIFO method. 
E) None of the above. 
A) The election to change can be made with the 2017 tax return and the beginning inventory for 2017 will be the same as the FIFO inventory at the end of 2016 and no § 481 adjustment is required. 
B) The beginning inventory value for 2017 must be computed as though the company had been using LIFO in all prior years and a § 481 adjustment is required. 
C) The taxpayer must apply in 2016 for permission to change methods effective in 2017. 
D) Duck must amend all prior years' tax returns to compute income by the LIFO method. 
E) None of the above.

Question 6

In the case of a sale reported under the installment method,gain is recognized in each year the seller collects on the installment contract.

Accepted Answer

A) True 
 B)False

Question 7

The accrual method generally is required for the following types of businesses:

Accepted Answer

A) A real estate management company,operating as an S corporation,with over $10 million of gross receipts. 
B) An incorporated public accounting firm with gross receipts in excess of $5 million. 
C) A partnership that has a partner that is an S corporation. 
D) A grocery store with average annual gross receipts of $800,000. 
E) None of the above. 
A) A real estate management company,operating as an S corporation,with over $10 million of gross receipts. 
B) An incorporated public accounting firm with gross receipts in excess of $5 million. 
C) A partnership that has a partner that is an S corporation. 
D) A grocery store with average annual gross receipts of $800,000. 
E) None of the above.

Question 8

The tax year of one of the principal partners may determine the partnership's tax year.

Accepted Answer

A) True 
 B)False

Question 9

The installment method applies where a payment will be received after the tax year of the sale:

Accepted Answer

A) By an investor who sold real estate at a gain. 
B) By an investor who sold real estate at a loss. 
C) By an appliance dealer who sold inventory at a gain. 
D) By an investor who sold IBM Corporation common stock at a gain. 
E) None of the above. 
A) By an investor who sold real estate at a gain. 
B) By an investor who sold real estate at a loss. 
C) By an appliance dealer who sold inventory at a gain. 
D) By an investor who sold IBM Corporation common stock at a gain. 
E) None of the above.

Question 10

In 2016,Swan Company discovered that it had for the past 10 years capitalized as a production cost certain expenses that are properly classified as administrative expenses.The total amount of the expense for 2015 was $300,000,$60,000 of the item was included in the ending inventory that year and $240,000 was deducted as cost of goods sold.

Accepted Answer

A) The company should amend its 2015 tax return and reduce its income by $240,000. 
B) The company should change its accounting method in 2016,with a $60,000 negative § 481 adjustment which decreases its 2016 taxable income. 
C) The company should change its accounting method in 2016,and increase its 2016 income by $60,000,the amount of the positive § 481 adjustment to income. 
D) The company should change its accounting method in 2016 and recognize a $60,000 negative § 481 adjustment that will be spread equally over 2016-19. 
E) None of the above. 
A) The company should amend its 2015 tax return and reduce its income by $240,000. 
B) The company should change its accounting method in 2016,with a $60,000 negative § 481 adjustment which decreases its 2016 taxable income. 
C) The company should change its accounting method in 2016,and increase its 2016 income by $60,000,the amount of the positive § 481 adjustment to income. 
D) The company should change its accounting method in 2016 and recognize a $60,000 negative § 481 adjustment that will be spread equally over 2016-19. 
E) None of the above.

Question 11

The taxpayer had consistently used the cash method of accounting even though inventories were a material income-producing factor to its business.The taxpayer decided to voluntarily change to the accrual method of accounting.The adjustment to income due to the change was that the correct beginning balances for the year of the change as follows: $60,000 for inventories,$30,000 for accounts receivable,and $12,000 for accounts payable.The adjustment due to the change in accounting method is:

Accepted Answer

A) A positive adjustment for $102,000. 
B) A positive adjustment for $90,000. 
C) A positive adjustment for $78,000. 
D) A positive adjustment for $60,000. 
E) None of the above. 
A) A positive adjustment for $102,000. 
B) A positive adjustment for $90,000. 
C) A positive adjustment for $78,000. 
D) A positive adjustment for $60,000. 
E) None of the above.

Question 12

Father sold land to Son for $500,000 in 2016.Father's basis in the land was $100,000.Son paid Father $50,000 and gave Father a note for $450,000 due in 2019.In 2017,Son sold the land for $600,000 cash.The note bore interest at the appropriate Federal rate and both Father and Son held the land as an investment.

Accepted Answer

A) Father must recognize $400,000 of income in 2017. 
B) The installment method is not permitted because this is a related-party transaction. 
C) Father's gain is all ordinary income. 
D) Father must recognize a $360,000 gain in 2017. 
E) None of the above. 
A) Father must recognize $400,000 of income in 2017. 
B) The installment method is not permitted because this is a related-party transaction. 
C) Father's gain is all ordinary income. 
D) Father must recognize a $360,000 gain in 2017. 
E) None of the above.

Question 13

If a company uses the LIFO inventory method to report the cost of inventory and cost of goods sold on its financial statements,footnote disclosure of the income as calculated by the FIFO method does not violate the tax and financial accounting conformity requirement.

Accepted Answer

A) True 
 B)False

Question 14

What incentives do the tax accounting rules provide for taxpayers to voluntarily change from an incorrect method of accounting that has reduced the company's tax liability in prior years?

Accepted Answer

The incorrect method that reduced taxabl

Question 15

Pink Corporation is an accrual basis taxpayer that uses the recurring item exception to the economic performance test for all relevant years.For 2016,the corporation's income subject to state income tax was $500,000 and the state corporate tax rate was 6%.During 2016,the corporation paid $24,000 on its estimated state income tax liability for that year.The remaining $6,000 of 2016 state income tax was paid in April 2017.In June 2016,the corporation paid $9,000 on its year 2015 state income tax liability,as a result of an audit of the 2015 return that was conducted in 2016.The company has elected to use the recurring item exception to economic performance.As a result of the above,the corporation should deduct in 2016 on its Federal income tax return state income taxes of:

Accepted Answer

A) $24,000. 
B) $30,000. 
C) $33,000. 
D) $39,000. 
E) None of the above. 
A) $24,000. 
B) $30,000. 
C) $33,000. 
D) $39,000. 
E) None of the above.

Question 16

In applying the lower of cost or market for tax purposes,the market price is the replacement cost of the goods,rather than their expected selling price.

Accepted Answer

A) True 
 B)False

Question 17

Franklin Company began business in 2012 and has consistently used the cash method to report income from the sale of inventory in income tax returns filed for 2012 through 2016.As a result of an audit by the IRS,Franklin was required to change to the accrual method of accounting beginning with 2017.The net adjustment due to the change is a positive adjustment to income.The adjustment may be spread equally over 2017 and the three following years.

Accepted Answer

A) True 
 B)False

Question 18

A doctor's incorporated medical practice may end the last day of any month of the year.

Accepted Answer

A) True 
 B)False

Question 19

Robin Construction Company began a long-term contract in 2016.The contract price was $800,000.The estimated cost of the contract at the time it was begun was $500,000.The actual cost incurred in 2016 was $350,000.The contract was completed in 2017 and the cost incurred that year was $125,000.Under the percentage of completion method:

Accepted Answer

A) Robin should report $300,000 of income in 2016. 
B) Robin should report $90,000 of income in 2017. 
C) Robin will receive interest (under the lookback method)on the underpayment of taxes in 2016. 
D) Robin should report $325,000 of income in 2016. 
E) None of the above is correct. 
A) Robin should report $300,000 of income in 2016. 
B) Robin should report $90,000 of income in 2017. 
C) Robin will receive interest (under the lookback method)on the underpayment of taxes in 2016. 
D) Robin should report $325,000 of income in 2016. 
E) None of the above is correct.

Question 20

Karen,an accrual basis taxpayer,sold goods in December 2016 for $20,000.The customer was unable to pay cash.So the customer gave Karen a note for $20,000 that was payable in April 2017.The note bore interest at the Federal rate.The fair market value of the note at the end of 2016 was $18,000.Karen collected $20,500 from the customer in April 2017,$20,000 principal plus $500 interest.Under the accrual method,Karen must recognize income of:

Accepted Answer

A) $20,500 in 2017 
B) $18,000 in 2016 and $2,500 in 2017 
C) $20,000 in 2016 and $500 in 2017. 
D) $20,500 in 2017. 
E) None of the above. 
A) $20,500 in 2017 
B) $18,000 in 2016 and $2,500 in 2017 
C) $20,000 in 2016 and $500 in 2017. 
D) $20,500 in 2017. 
E) None of the above.

The ability of the CPA to timely prepare a tax return is a justification for the partnership's use of a particular tax year.

A C corporation provides lawn maintenance services to various businesses and homeowners.The corporation has average annual gross receipts of $3,500,000.The corporation may use the cash method of accounting.

Using your knowledge of GAAP and financial reporting,list and explain one good reason why GAAP should not be used for tax purposes and one good reason why it should be used.

Which of the following statements is true concerning the disposition of an installment note?

Duck Company has valued its inventories at FIFO cost for the past 10 years.The Company would like to change to the LIFO method,effective in 2017.

In the case of a sale reported under the installment method,gain is recognized in each year the seller collects on the installment contract.

The accrual method generally is required for the following types of businesses:

The tax year of one of the principal partners may determine the partnership's tax year.

The installment method applies where a payment will be received after the tax year of the sale:

If a company uses the LIFO inventory method to report the cost of inventory and cost of goods sold on its financial statements,footnote disclosure of the income as calculated by the FIFO method does not violate the tax and financial accounting conformity requirement.

What incentives do the tax accounting rules provide for taxpayers to voluntarily change from an incorrect method of accounting that has reduced the company's tax liability in prior years?

In applying the lower of cost or market for tax purposes,the market price is the replacement cost of the goods,rather than their expected selling price.

A doctor's incorporated medical practice may end the last day of any month of the year.

An Introduction to Taxation and Understanding the Federal Law

Working With the Tax Law

Tax Formula and Tax Determination an Overview of Property Transactions

Gross Income Concepts and Inclusions

Gross Income Exclusions

Deductions and Losses in General

Deductions and Losses Certain Business Expenses and Losses

Depreciation Cost Recovery Amortization and Depletion

Deductions Employee and Self Employed Related Expenses

Deduction and Losses Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions Determination of Gain and Loss and Basic Considerations

Property Transactions Nontaxable Exchanges

Property Transactions Capital Gains and Losses

Property Transactions Section 1231 and Recapture Provisions

Deferred Compensation

Corporations and Partnerships

Filters

Exam 18: Accounting Periods and Methods

The ability of the CPA to timely prepare a tax return is a justification for the partnership's use of a particular tax year.

A C corporation provides lawn maintenance services to various businesses and homeowners.The corporation has average annual gross receipts of $3,500,000.The corporation may use the cash method of accounting.

​Using your knowledge of GAAP and financial reporting,list and explain one good reason why GAAP should not be used for tax purposes and one good reason why it should be used.

Which of the following statements is true concerning the disposition of an installment note?

Duck Company has valued its inventories at FIFO cost for the past 10 years.The Company would like to change to the LIFO method,effective in 2017.

In the case of a sale reported under the installment method,gain is recognized in each year the seller collects on the installment contract.

The accrual method generally is required for the following types of businesses:

The tax year of one of the principal partners may determine the partnership's tax year.

The installment method applies where a payment will be received after the tax year of the sale:

If a company uses the LIFO inventory method to report the cost of inventory and cost of goods sold on its financial statements,footnote disclosure of the income as calculated by the FIFO method does not violate the tax and financial accounting conformity requirement.

What incentives do the tax accounting rules provide for taxpayers to voluntarily change from an incorrect method of accounting that has reduced the company's tax liability in prior years?

In applying the lower of cost or market for tax purposes,the market price is the replacement cost of the goods,rather than their expected selling price.

A doctor's incorporated medical practice may end the last day of any month of the year.

An Introduction to Taxation and Understanding the Federal Law

Working With the Tax Law

Tax Formula and Tax Determination an Overview of Property Transactions

Gross Income Concepts and Inclusions

Gross Income Exclusions

Deductions and Losses in General

Deductions and Losses Certain Business Expenses and Losses

Depreciation Cost Recovery Amortization and Depletion

Deductions Employee and Self Employed Related Expenses

Deduction and Losses Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions Determination of Gain and Loss and Basic Considerations

Property Transactions Nontaxable Exchanges

Property Transactions Capital Gains and Losses

Property Transactions Section 1231 and Recapture Provisions

Deferred Compensation

Corporations and Partnerships

Filters

Using your knowledge of GAAP and financial reporting,list and explain one good reason why GAAP should not be used for tax purposes and one good reason why it should be used.