Question 1

A doctor's incorporated medical practice may end the last day of any month of the year.

Accepted Answer

A) True 
 B)False

Question 2

Under the percentage of completion method, if the actual costs are the estimated costs, the taxpayer must pay interest on the underpayment of prior years' taxes.

Accepted Answer

A)   Greater than.
B)   Less than.
C)   Equal to or greater than.
D)   Equal to.
E)   None of the above.F) A) and B)
G) A) and C)

Question 3

A calendar year, cash basis corporation began business on April 1, 2014, and paid $2,400 for a 24-month liability insurance policy. An accrual basis, calendar year taxpayer also began business on April 1, 2014, and purchased a 24- month liability insurance policy. The accrual basis taxpayer must amortize the premiums over 24 months but the cash basis taxpayer may deduct the total premiums in 2014.

Accepted Answer

A) True 
 B)False

Question 4

Hal sold land held as an investment with a fair market value of $100,000 for $36,000 cash and a note for $64,000 that was due in two years. The note bore interest of 7% when the applicable Federal rate was 4%. Hal's cost of the land was $40,000. Because of the buyer's good credit record and the high interest rate on the note, Hal thought the fair market value of the note was at least $74,000.

Accepted Answer

A)   Hal can elect to treat the $36,000 as a recovery of capital.
B)   Hal must recognize $60,000 gain in the year of sale.
C)   Hal must recognize $36,000 gain in the year of sale.
D)   Unless Hal elects not to use the installment method, Hal must recognize $21,600 gain in the year of sale.
E)   None of the above.F) C) and E)
G) D) and E)

Question 5

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 balanceIs consistent with prior bad debt experience.
E)   None of the above.F) A) and B)
G) A) and C)

Question 6

Purple Corporation, a personal service corporation (PSC) , adopted a fiscal year ending September 30th. The sole shareholder of the corporation is a calendar year taxpayer. During the fiscal year ending September 30, 2014, the shareholder-employee received $120,000 salary. The corporation paid the shareholder-employee a salary of $15,000 during the period beginning October 1, 2014 through December 31, 2014.

Accepted Answer

A)   The corporation salary expense for the fiscal year ending September 30, 2015 is limited to $120,000.
B)   The corporation salary expense for the fiscal year ending September 30, 2015 is limited to $135,000.
C)   The corporation salary expense for the fiscal year ending September 30, 2015 is limited to $60,000.
D)   The corporation must switch to a calendar year.
E)   None of the above.F) A) and D)
G) A) and C)

Question 7

Computer Consultants Inc., began business as an adviser to chains of retail stores. The company assisted the stores in the selection of hardware and the development of software used by retail chain stores. Later the company developed software and sold it to its customers. The company also began selling some of the equipment to the customers. That is, the company would bid on a job to purchase and install equipment and the software. The company has consistently reported its income by the cash method. At the end of the year, the company has substantial accounts receivables from clients and a small amount of inventory on hand. What advice can you offer the company regarding its accounting method?

Accepted Answer

Inventories are an income-producing fact...

Question 8

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.F) C) and D)
G) B) and E)

Question 9

The installment method can be used for which of the following sales with payments being made in the year following the year of sale?

Accepted Answer

A)   A department store's credit card sales.
B)   An individual's sale of common stock in a family owned business.
C)   An individual's sale of General Electric common.
D)   Depreciable equipment sold for less than its original cost.
E)   All of the above.F) A) and C)
G) A) and B)

Question 10

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 and ancestors.
D)   Uncles and aunts.
E)   All of the above would be considered related parties.F) A) and E)
G) C) and D)

Question 11

Which of the following statements is true concerning the disposition of an installment note?

Accepted Answer

A)   Deferred gain is not recognized by the transferor if the installment note is a non-taxable transfer to a controlled corporation.
B)   Deferred gain must only be recognized if the installment note was transferred as a gift to a related party.
C)   Transfer of an installment obligation to another party will not trigger immediate recognition of deferred gain.
D)   Deferred gain must be recognized if the note is transferred to the owner's estate at his death.
E)   None of the above.F) B) and E)
G) C) and D)

Question 12

If an installment sale contract does not charge interest on the sale of a capital asset, only capital gain will be recognized over the life of the contract.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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.F) A) and B)
G) B) and E)

Question 15

Snow Corporation began business on May 1, 2014, and elected to use the calendar year for tax purposes. Brown Corporation, a calendar year corporation, sold all of its assets and liquidated as of April 30, 2014. Neither Snow Corporation nor Brown Corporation must annualize their income for their 2014 returns.

Accepted Answer

A) True 
 B)False  True

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 straight­line 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?
$\begin{array} { l l } 
\text { Section } 1231 \text { Gain } & \text { Unrecaptured } \S 1250 \text { Gain Taxed at } 25 \% \\end{array}$
A)$\begin{array} { l l }  &&\$ 66,000 &&&& \$ 0 \\end{array}$
B) $\begin{array} { l l }&& \$ 0 &&&&&& \$ 66,000 \\end{array}$
C)$\begin{array} { l l } && \$ 90,000 &&&& \$ 90,000 \\end{array}$
D)$\begin{array} { l l }  &&\$ 90,000 &&&& \$ 0 \\end{array}$
E)$\begin{array} { l l }  &&\$ 0 &&&&&& \$ 110,000\end{array}$

Accepted Answer

The answer of Albert is in the 35% marginal tax...

Question 17

Color, Inc., is an accrual basis taxpayer. In December 2014, the company received from a customer a $500 claim for defective merchandise. Color paid the customer in January 2015. Also, in December 2014, the company received a bill of $800 for office supplies that had been purchased and used in November 2014. The bill was not paid until January 2015. In January 2015, the company received a claim for $600 for defective merchandise purchased in 2014. Color paid the customer the $600 in February 2014. Assuming Color uses the recurring item exception to economic performance, the company's deductions for 2014 as a result of the above are:

Accepted Answer

A)   $500.
B)   $600.
C)   $800.
D)   $1,300.
E)   $1,900.F) A) and E)
G) B) and D)

Question 18

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

Accepted Answer

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

Question 19

Charlotte sold her unincorporated business for $600,000 in 2014. The sales contract allocated $120,000 to equipment, $300,000 to land, and $180,000 to goodwill. Charlotte had a $0 basis in the goodwill, the land cost $150,000, and the equipment originally cost $250,000 but it was fully depreciated. What is the amount of the gain eligible for installment sales treatment?

Accepted Answer

A)   $0.
B)   $330,000.
C)   $450,000.
D)   $600,000.
E)   None of the above.F) All of the above
G) C) and D) B

Question 20

In the case of a sale reported under the installment method, gain is recognized in each year the seller collects on the installment contract.

Accepted Answer

A) True 
 B)False

Exam 16: Accounting Periods and Methods

A doctor's incorporated medical practice may end the last day of any month of the year.

Correct Answer
verified

Under the percentage of completion method, if the actual costs are the estimated costs, the taxpayer must pay interest on the underpayment of prior years' taxes.

Correct Answer
verified

Correct Answer
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Correct Answer
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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.

Correct Answer
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Correct Answer
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Correct Answer
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Inventories are an income-producing fact...
View Answer

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

Correct Answer
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The installment method can be used for which of the following sales with payments being made in the year following the year of sale?

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

Correct Answer
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Which of the following statements is true concerning the disposition of an installment note?

Correct Answer
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If an installment sale contract does not charge interest on the sale of a capital asset, only capital gain will be recognized over the life of the contract.

Correct Answer
verified

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.

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

Correct Answer
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Correct Answer
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True

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

Correct Answer
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D

Correct Answer
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B

In the case of a sale reported under the installment method, gain is recognized in each year the seller collects on the installment contract.

Correct Answer
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Exam 16: Accounting Periods and Methods

A doctor's incorporated medical practice may end the last day of any month of the year.

Correct AnswerverifiedShow Answer

Under the percentage of completion method, if the actual costs are the estimated costs, the taxpayer must pay interest on the underpayment of prior years' taxes.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedInventories are an income-producing fact...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The installment method can be used for which of the following sales with payments being made in the year following the year of sale?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is true concerning the disposition of an installment note?

Correct AnswerverifiedShow Answer

If an installment sale contract does not charge interest on the sale of a capital asset, only capital gain will be recognized over the life of the contract.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedTrue

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedD

Correct AnswerverifiedB

In the case of a sale reported under the installment method, gain is recognized in each year the seller collects on the installment contract.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Inventories are an income-producing fact...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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True

Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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B

Correct Answer
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