Exam 18: Accounting Periods and Methods

In regard to choosing a tax year for a business owned by individuals,which form of business provides the greater number of options in regard to the tax year?

John sold an apartment building for $600,000.His basis in the building was $360,000 and it was subject to $30,000 of depreciation recapture.John received $150,000 in the year of sale,the buyer assumed John's mortgage payable of $240,000,and the buyer gave John an 8% (the current Federal rate)note of $210,000 due in 5 years.The interest on the note was payable each June 30th,beginning in the year following the year of the sale.John incurred $30,000 of selling expenses which he paid in the year of sale.Compute John's installment sales gain that should be reported in the year of sale.

Yard Corporation,a cash basis taxpayer,received $10,000 from a customer in 2015.In 2015,the customer filed a claim for a refund of the fee.In 2016,Yard refunded the customer $6,000.In 2015,Yard paid $5,000 in estimated state income tax.In May 2016,Yard received a state income tax refund of $2,000 for overpayment of its 2015 income tax.Yard was in the 35% marginal tax bracket in 2015 and in the 15% marginal tax bracket in 2016.What are the tax effects of the 2016 payment to the customer and the collection of the state income taxes overpaid?

A retailer must actually receive a claim for refund from the customer before a deduction can be taken for the refund.

Crow Corporation has used the LIFO inventory method for the past 10 years.During that time,the prices Crow pays for the inventory have increased by 50%.Its inventory value when it first adopted LIFO was $5,000,000.The company began using a just-in-time inventory system the same year it adopted LIFO,and although sales have increased,the quantities of goods on hand at year end has not changed in the past ten years.The corporation's marginal tax rate has been 35% in all of the years.As a result of the LIFO election:

Gold Corporation,Silver Corporation,and Copper Corporation are equal partners in the GSC Partnership.The partners' tax year-ends are as follows: Gold December 31st Silver April 30th Copper September 30th

In 2016,Norma sold Zinc,Inc. ,common stock for $100,000 cash and a note receivable for $900,000.The note was due in 2017 with accrued interest at the Federal rate.Norma's basis in the stock was $250,000.This was Norma's only installment sale transaction.Which of the following statements is correct?

The taxpayer does need the IRS's permission to change from the FIFO inventory method to the LIFO method.