Exam 11: Accounting Periods and Methods

A business which provides a warranty on goods sold will deduct a reserve for warranty expense consistent with the reporting on its financial statements.

The uniform capitalization rules (UNICAP) require the capitalization of some overhead costs that are expensed for financial accounting purposes.

Nick sells land with a $7,000 adjusted basis for $10,000.Nick receives a $2,000 down payment with the balance of $8,000 due the following year.Nick is unable to collect the remaining $8,000 and,after incurring legal fees of $500,he repossesses the land when it has a fair market value of $9,000. a.What is the amount of gain that Nick must report in the first year? b.What is the amount of gain that Nick must report in the second year? c.What is the basis in the repossessed stock?

A taxpayer may use a combination of accounting methods as long as income is clearly reflected.

A taxpayer is selling land held for investment purposes.Payments will be received under the terms of a five-year installment note.Which of the following circumstances would suggest consideration of an election out of the installment method?

A taxpayer who uses the cash method in computing gross income from his or her business must use the cash method in computing expenses of such business.

A taxpayer sells a parcel of land on the installment sale basis and will recognize the gain over the five-year installment schedule.Form 6252 must be included with his tax return only in the year of sale.

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

Jared wants his daughter,Jacqueline,to learn about the stock market.He loans Jacqueline $30,000,but does not require Jacqueline to pay interest.Jared tells Jacqueline that she can repay him from the proceeds of future stock sales.Discuss the tax issues that Jared should consider.

Many taxpayers use the LIFO method of inventory valuation because during inflationary periods,LIFO normally results in the lowest inventory value and hence the lowest taxable income.

The look-back interest adjustment involves the

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

Owners of pass-through entities may defer income recognition by selecting a different tax year for the business if at least 25% of the business revenues occur during the last two months of the proposed year.

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 business uses the same inventory method for both financial reporting and tax reporting.Because of the UNICAP requirement,ending inventory is likely to be

Partnerships,S corporations,and personal service corporations may elect a taxable year which results in a tax deferral of four months or less.

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

A taxpayer obtains permission to change an accounting method.The change will result in a positive adjustment to income.To help in managing its cash flow,the taxpayer would like to spread the change over multiple years.In order to take advantage of this opportunity,the net positive adjustment must exceed

In 2016 Anika Co.adopted the simplified dollar-value LIFO method.Inventory under FIFO in 2016 and 2017 is $400,000 and $600,000,respectively.The Consumer Price Index for 2016 is 115 and the Consumer Price Index in 2017 is 125 percent.How much is Anika's inventory at the end of year 2017 under simplified LIFO?

Interest is not imputed on a gift loan between two individuals totaling $14,000 except when the borrowed funds are used to purchase income-producing property.