Exam 16: Accounting Periods and Methods

Gray Company, a calendar year taxpayer, allows customers to return defective merchandise for a full refund within 30 days of the purchase.In 2012, the company refunded $400,000 for claims involving sales.The $400,000 consisted of $350,000 in refunds from 2012 sales and $50,000 in refunds from 2011 sales.All of the refunds from 2011 sales were for claims filed in 2011 and were paid in January and February 2012.At the end of 2012, the company had $12,000 in refund claims for sales in 2012 for which payment had been approved.These claims were paid in January 2013.Also in January 2013, the company received an additional $30,000 in claims for sales in 2012.This $30,000 was paid by Gray in February 2013.With respect to the above, Gray can deduct:

Karen, an accrual basis taxpayer, sold goods in December 2012 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 2013.The note bore interest at the Federal rate.The fair market value of the note at the end of 2012 was $18,000.Karen collected $20,500 from the customer in April 2013, $20,000 principal plus $500 interest. Under the accrual method, Karen must recognize income of:

Gold Corporation, Silver Corporation, and Copper Corporation are equal partners in the GSC Partnership.The partners' tax year-ends are as follows:

Alice, Inc., is an S corporation that has been in business for five years.Its annual gross receipts have never exceeded $1 million. The corporation operates a retail store and also owns rental property.The sales from the retail store and the rental income may be reported by the cash method, unless Alice previously elected the accrual method.

Which of the following must use the accrual method of accounting?

When the IRS requires a taxpayer to change accounting methods:

Which of the following statements regarding a 52-53 week tax year is correct?