Exam 11: Accounting Periods and Methods

All of the following statements are true except

All C corporations can elect a tax year other than a calendar year.

A taxpayer receives permission for a voluntary change in accounting method,resulting in a negative adjustment to income.The taxpayer would like to recognize the full negative adjustment in the current year in order to maximize tax savings and time value of money.In order to recognize the full adjustment this year,the adjustment must not exceed

A fiscal year is a 12-month period that ends on the last day of any month other than December.

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?

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.

Under the percentage of completion method,gross income is reported

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

All of the following are considered related for purposes of Section 453(e) installment sales except

CPA Associates,a cash-basis partnership with a calendar tax year,signs a contract for a 20-month subscription to an online tax research service,effective as of April 1.The firm pays the full $10,000 subscription bill on the April 1,2017 subscription start date.For 2017 the firm can deduct

Malea sold a machine for $140,000.The machine originally cost $90,000 and $10,000 of MACRS depreciation had been allowable.The buyer assumed an existing loan of $40,000,paid $20,000 cash down and agreed to pay $10,000 per year for eight years plus interest.Selling expenses are $10,000.The contract price is

C corporations and partnerships with a corporate partner may use the cash method of accounting if average annual gross receipts for the three preceding tax years do not exceed $10 million.

This year,Hamilton,a local manufacturer of off-shore drilling platforms,entered into a contract to construct a drilling platform that will be placed in the North Atlantic Ocean.The total contract price is $5,000,000,and Hamilton estimates the total construction cost at $3,000,000.Actual costs incurred this year are $600,000.If Hamilton uses the percentage of completion method,the gross profit for this year is

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.

This year,John purchased property from William by assuming an existing mortgage of $40,000 and agreed to pay an additional $60,000,plus interest,in the 3 years following the year of sale (i.e.$20,000 annual payments for three years,plus interest).William had an adjusted basis of $44,000 in the building.What are the sales price and the contract price in this transaction?

A taxpayer must use the same accounting method on the personal tax return that the taxpayer uses in the taxpayer's trade or business.

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

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

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?

A subsidiary corporation filing a consolidated return with its parent corporation must change its accounting period to conform with its parent's tax year.