Question 1

A doctor's incorporated medical practice,generally,must have a business purpose for using a tax year that does not end on December 31.

Accepted Answer

A) True 
 B)False

Question 2

In 2010,Father sold land to Son for $75,000 cash and an installment note for $225,000.Father's basis was $120,000.In 2011,after paying $24,000 interest but nothing on the principal,Son sold the land for $300,000 cash.As a result of the second disposition,what gain must Father recognize in 2011?

Accepted Answer

A) $180,000. 
B) $135,000. 
C) $120,000. 
D) $60,000. 
E) None of the above. 
A) $180,000. 
B) $135,000. 
C) $120,000. 
D) $60,000. 
E) None of the above.

Question 3

Brown Corporation had consistently reported its income by the cash method.The corporation should have used the accrual method because inventories are material to the business.In 2010,Brown timely filed a request to change to the accrual method.At the beginning of 2010,Brown had accounts receivable of $60,000.Also,Brown had merchandise on hand with a cost of $80,000 and accounts payable for merchandise of $25,000.The accounts receivable,inventory,and accounts payable balance per books were zero.Determine the adjustment to income due to the change in accounting method and the amount that is allocated to 2010.

Accepted Answer

Adjustment due to the change:
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Question 4

Karen,an accrual basis taxpayer,sold goods in October 2010 for $10,000.The customer was unable to pay cash.So the customer gave Karen a note for $10,000 that was payable in April 2011.The note bore interest at the Federal rate.The fair market value of the note at the end of 2010 was $9,000.Karen collected $10,000 from the customer in April 2011.Under the accrual method:

Accepted Answer

A) Karen must recognize $10,000 of income in 2010. 
B) Karen must recognize $9,000 of income in 2010. 
C) Karen must recognize $10,000 of income in 2011. 
D) Karen must recognize $1,000 of income in 2011. 
E) None of the above. 
A) Karen must recognize $10,000 of income in 2010. 
B) Karen must recognize $9,000 of income in 2010. 
C) Karen must recognize $10,000 of income in 2011. 
D) Karen must recognize $1,000 of income in 2011. 
E) None of the above.

Question 5

Which of the following taxpayers is required to use the accrual method of accounting?

Accepted Answer

A) A retail business with average annual gross receipts of $800,000. 
B) A medical doctor with average annual gross receipts of $2 million. 
C) An insurance agency with average annual gross receipts of $2 million. 
D) All of the above are required to use the accrual method. 
E) None of the above is required to use the accrual method. 
A) A retail business with average annual gross receipts of $800,000. 
B) A medical doctor with average annual gross receipts of $2 million. 
C) An insurance agency with average annual gross receipts of $2 million. 
D) All of the above are required to use the accrual method. 
E) None of the above is required to use the accrual method.

Question 6

Ramon sold land in 2010 with a cost of $60,000 for $100,000.The sales agreement called for a $25,000 down payment and a $25,000 payment on the first day of each year plus 8% interest.What would be the consequences of the following (treat each part independently and assume Ramon uses the installment method whenever possible):

Accepted Answer

The answer of Ramon sold land in 2010 with a...

Question 7

Terry,Inc. ,makes gasoline storage tanks.All production is done under contract.The company makes three basic models,but each model must be adapted to customer specifications for the location of outlets,insulation,and paint.It takes from three to six months to complete a tank.How should Terry account for the income for the business?

Accepted Answer

Terry,Inc.could have the percentage of c

Question 8

Ted,a cash basis taxpayer,received a $100,000 bonus in 2010 when he was in the 35% marginal tax bracket.In 2011,when Ted was in the 28% marginal tax bracket,it was discovered that the bonus was incorrectly computed,and Ted was required to refund $25,000 to his employer.As a result of the refund,Ted can reduce his 2011 tax liability by $8,750 (.35 * $25,000).

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements regarding a 52-53 week tax year is not correct?

Accepted Answer

A) The year-end must be the same day of the week in all years. 
B) Some tax years will include more than 366 calendar days. 
C) Whether the particular tax year includes 52 weeks or 53 weeks is not elective. 
D) All of the above are correct. 
E) None of the above is correct. 
A) The year-end must be the same day of the week in all years. 
B) Some tax years will include more than 366 calendar days. 
C) Whether the particular tax year includes 52 weeks or 53 weeks is not elective. 
D) All of the above are correct. 
E) None of the above is correct.

Question 10

If an installment sale contract does not charge interest on the sale of a capital asset,the IRS will impute interest and thereby increase the taxpayer's capital gain and interest income.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) The partnership is free to elect any tax year. 
B) The partnership may use any of the 3 year-end dates that its partners use. 
C) The partnership must use a September 30th year-end. 
D) The partnership must use a April 30th year-end. 
E) None of the above. 
A) The partnership is free to elect any tax year. 
B) The partnership may use any of the 3 year-end dates that its partners use. 
C) The partnership must use a September 30th year-end. 
D) The partnership must use a April 30th year-end. 
E) None of the above.

Question 12

The installment method applies where a payment will be received after the tax year of the sale:

Accepted Answer

A) By an investor who sold real estate at a gain. 
B) By an investor who sold real estate at a loss. 
C) By an appliance dealer who sold inventory. 
D) By an investor who sold IBM Corporation common stock. 
E) None of the above. 
A) By an investor who sold real estate at a gain. 
B) By an investor who sold real estate at a loss. 
C) By an appliance dealer who sold inventory. 
D) By an investor who sold IBM Corporation common stock. 
E) None of the above.

Question 13

For purposes of determining the partnership's tax year,there may be more than one principal partner.

Accepted Answer

A) True 
 B)False

Question 14

The taxpayer has consistently,but incorrectly,used an allowance for bad debts.At the beginning of the year,the balance in the allowance account is $90,000.

Accepted Answer

A) If the IRS examines the taxpayer's return and requires the taxpayer to change accounting methods,the taxpayer will be required to recognize an additional $90,000 of income (one-half in the current year and one-half in the following year)as the adjustment due to the change in accounting methods. 
B) If the taxpayer voluntarily changes methods,the $90,000 adjustment can be spread over the current and three following years. 
C) If the taxpayer voluntarily changes methods,the $90,000 reserve can be used to absorb bad debts until the account balance is zero. 
D) If the IRS examines the taxpayer's return,no adjustment to the reserve account will be required if the balance is consistent with prior bad debt experience. 
E) None of the above. 
A) If the IRS examines the taxpayer's return and requires the taxpayer to change accounting methods,the taxpayer will be required to recognize an additional $90,000 of income (one-half in the current year and one-half in the following year)as the adjustment due to the change in accounting methods. 
B) If the taxpayer voluntarily changes methods,the $90,000 adjustment can be spread over the current and three following years. 
C) If the taxpayer voluntarily changes methods,the $90,000 reserve can be used to absorb bad debts until the account balance is zero. 
D) If the IRS examines the taxpayer's return,no adjustment to the reserve account will be required if the balance is consistent with prior bad debt experience. 
E) None of the above.

Question 15

Related-party installment sales include all of the following except the first seller's:

Accepted Answer

A) Brothers and sisters. 
B) Controlled corporations. 
C) Lineal descendants. 
D) Partnerships in which the seller has an interest. 
E) All of the above would be considered related parties. 
A) Brothers and sisters. 
B) Controlled corporations. 
C) Lineal descendants. 
D) Partnerships in which the seller has an interest. 
E) All of the above would be considered related parties.

Question 16

Albert is in the 35% marginal tax bracket.He sold a building in the current year for $450,000.Albert received $110,000 cash at closing,the buyer assumed Albert's mortgage for $120,000,and the buyer gave Albert a 6% note for $220,000 due in two years.The Federal rate was 6%.Albert's basis in the building was $180,000 ($500,000 cost - $320,000 accumulated straight-line depreciation).Assuming he did not elect out of the installment method,Albert's § 1231 gain and gain taxed at the 25% rate in the year of sale are what amounts? Section 1231 Gain Unrecaptured § 1250 Gain Taxed at 25%

Accepted Answer

A) $66,000 $0 
B) $0 $66,000 
C) $90,000 $90,000 
D) $90,000 $0 
E) $0 $110,000 
A) $66,000 $0 
B) $0 $66,000 
C) $90,000 $90,000 
D) $90,000 $0 
E) $0 $110,000

Question 17

When the IRS requires a taxpayer to change accounting methods:

Accepted Answer

A) The taxpayer may be subject to penalties and interest. 
B) The taxpayer generally is required to make the change as of the beginning of the earliest open year. 
C) The adjustments due to the change cannot be spread over subsequent years. 
D) All of the above are correct. 
E) None of the above is correct. 
A) The taxpayer may be subject to penalties and interest. 
B) The taxpayer generally is required to make the change as of the beginning of the earliest open year. 
C) The adjustments due to the change cannot be spread over subsequent years. 
D) All of the above are correct. 
E) None of the above is correct.

Question 18

For a taxpayer who is required to use the percentage of completion method,the taxpayer can elect to defer the recognition of income and the related costs until the taxable year in which cumulative contract costs are at least 10 percent of the estimated contract costs.

Accepted Answer

A) True 
 B)False

Question 19

Franklin Company began business in 2008 and has consistently used the cash method to report income from the sale of inventory in income tax returns filed for 2008 through 2010.As a result of an audit by the IRS,Franklin was required to change to the accrual method of accounting beginning with 2011.The accounts receivable and inventory on hand at the end of 2010 are treated as a positive adjustment to income and the accounts payable for inventory at the end of 2010 is a negative adjustment to income.These adjustments result from changing accounting methods and must be included in the 2010 taxable income.

Accepted Answer

A) True 
 B)False

Question 20

In the case of an accrual basis taxpayer,an item of income:

Accepted Answer

A) Is not recognized until cash is received. 
B) From services is never recognized until the services are performed. 
C) Is not recognized if the customer can return the goods. 
D) Is recognized when all the events have occurred to fix the taxpayer's right to receive the income and the amount of the income can be determined with reasonable accuracy. 
E) None of the above. 
A) Is not recognized until cash is received. 
B) From services is never recognized until the services are performed. 
C) Is not recognized if the customer can return the goods. 
D) Is recognized when all the events have occurred to fix the taxpayer's right to receive the income and the amount of the income can be determined with reasonable accuracy. 
E) None of the above.

Exam 16: Accounting Periods and Methods

A doctor's incorporated medical practice,generally,must have a business purpose for using a tax year that does not end on December 31.

In 2010,Father sold land to Son for $75,000 cash and an installment note for $225,000.Father's basis was $120,000.In 2011,after paying $24,000 interest but nothing on the principal,Son sold the land for $300,000 cash.As a result of the second disposition,what gain must Father recognize in 2011?

Which of the following taxpayers is required to use the accrual method of accounting?

Which of the following statements regarding a 52-53 week tax year is not correct?

If an installment sale contract does not charge interest on the sale of a capital asset,the IRS will impute interest and thereby increase the taxpayer's capital gain and interest income.

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

The installment method applies where a payment will be received after the tax year of the sale:

For purposes of determining the partnership's tax year,there may be more than one principal partner.

The taxpayer has consistently,but incorrectly,used an allowance for bad debts.At the beginning of the year,the balance in the allowance account is $90,000.

Related-party installment sales include all of the following except the first seller's:

When the IRS requires a taxpayer to change accounting methods:

For a taxpayer who is required to use the percentage of completion method,the taxpayer can elect to defer the recognition of income and the related costs until the taxable year in which cumulative contract costs are at least 10 percent of the estimated contract costs.

In the case of an accrual basis taxpayer,an item of income:

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation,cost Recovery,amortization,and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Part 1--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Part 2--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses,1231,and Recapure Provisions

Alternative Minimum Tax

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters