Exam 11: Accounting Periods and Methods

In 2017,Richard's Department Store changes its inventory method from FIFO to LIFO.Richard's uses the simplified LIFO method.Richard's year-end inventory under FIFO is as follows: 2016 - $300,000; 2017 - $350,000.The 2016 price index is 110% and the 2017 index is 120%.The 2017 ending inventory after adopting the LIFO method is

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.

When a new business is formed,it must request approval from the IRS regarding the adoption of its various accounting methods.

Except in a few specific circumstances,once adopted,an accounting period may be changed without IRS approval.

Which of the following conditions are required for the use of the installment method?

Misha,a single taxpayer,died on July 31,2017.Her final income tax return (ignoring extensions) is due November 15,2017.

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

A partnership must generally use the same tax year as that of its principal partners.

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

Discuss the purpose of the imputed interest rules.

When preparing a tax return for a short period,the taxpayer should annualize the income if the short period return

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 the cash method of accounting,all expenses are deductible when paid.

If a cash-basis taxpayer gives a note in payment of an expense,the deduction may not be taken until the note is paid.

Kevin sold property with an adjusted basis of $58,000.The buyer assumed Kevin's existing mortgage of $40,000 and agreed to pay an additional $60,000 consisting of a cash down payment of $40,000,and payments of $4,000,plus interest,per year for the next 5 years.Kevin paid selling expenses totaling $2,000.What is Kevin's gross profit percentage?

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

Generally,economic performance must occur before an expense may be deducted.In some cases,this requirement of economic performance may be waived.Discuss the conditions under which economic performance may be waived and an earlier deduction may be allowed.

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

Chana made a $75,000 interest-free loan to her son,Trey,who used the money to retire a mortgage on his personal residence.Trey's only source of income was salary of $50,000 and $940 interest income on a savings account.The relevant Federal interest rate was 5% and the loan was outstanding all year long.What amount must Chana include as interest income as a result of this transaction?

Kyle sold land on the installment basis for $100,000.His basis in the land was $70,000.Kyle received a $40,000 down payment and a real estate installment sale contract calling for $60,000 in additional payments in future years.In addition,Kyle paid $6,000 in commissions on the sale.What is the gross profit to be recognized in the current year?