If there are no majority interest partners, the partnership must adopt the same tax year asits principal partners. ANS: TWith a year ending September 30th, the aggregate deferral months will be 1.5 (3 .50).If the principal partners do not all have the same tax year and there are no majority interest partners, the partnership must use a tax year that results in the least aggregate deferral of income. That is, Green Corporation will defer for three months its share of partnership income. In 2002, a medical doctor who incorporated his practice elected a fiscal year ending September30th.With a calendaryear, the aggregate deferral months will be 4.5 (9 .5). The test employed by the IRS to determine if an S corporations natural business year is otherthan the calendar year is based on gross receipts for the last two months of the tax year as a percent of gross receipts for the twelve month period ending with the last month of the tax year. A partnership can elect to use a tax year other than a calendar year if the partnerships CPA is toobusy to prepare a calendar year return. During the fiscal year ended September 30, 2008, he received a salary of $180,000.

proportionate liquidating distribution-58

Unformatted text preview: CHAPTER 18ACCOUNTING PERIODS AND METHODSInstructor: The test items in both the print Test Bank and Exam View test-creation softwareare numbered by question type within each chapter.

Thus, users of Exam View can moreeasily preview their selections using the printed Test Bank in the same numbering system.

Status: Present Question/Problem Topic Edition Q/Pin Prior Edition TRUE OR FALSE12345678910111213141516171819202122232425262728293031Tax year: personal service corporation Tax year: C corporation Tax year: S corporation Tax year: partnership Tax year: partnership and principal partner Tax year: partnership and majority interest partners Tax year: partnership and least aggregate deferralmethod Tax year: S corporation and natural business year Tax year: partnership business purpose Tax year: personal service corporation Short tax year Tax year: annualization Tax year: annualization Restoration of amounts received under a claimof right Accounting method: cash versus accrual Cash method: one-year rule Electing an accounting method: multiple businesses All-events test for deductions Accounting method: cash versus accrual Change in accounting method: 481 adjustment Change in accounting method: 481 adjustment Installment method: recognized gain Installment method: recovery of capital Installment method: interest on deferred taxes Capitalization of interest Percentage of completion method versus completedcontract method: eligibility Percentage of completion method: de minimis rule Inventories: capitalization Inventories: lower of cost or market Inventories: lower of cost or market Inventories: change in method18-1New Unchanged Unchanged Unchanged Unchanged Unchanged New23456New Unchanged Unchanged Unchanged Unchanged Unchanged New910111213New Unchanged Unchanged Unchanged Unchanged Unchanged New Unchanged Unchanged Unchanged New Unchanged Unchanged Unchanged New Unchanged Unchanged1617181920222324262728303118-22009 Annual Edition/Test Bank Status: Present Question/Problem323334Topic Inventories: LIFOInventories: LIFO and financial reporting Inventories: LIFOQ/Pin Edition Prior Edition Unchanged Unchanged Unchanged323334Unchanged Modified Unchanged New Unchanged Unchanged Unchanged Unchanged123Unchanged Unchanged New Unchanged Unchanged Unchanged Unchanged Unchanged New New Unchanged Unchanged New Unchanged Unchanged Unchanged New Unchanged Unchanged Unchanged New910Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged303132333435363738MULTIPLE CHOICE1234567891011121314151617181920212223242526272829303132333435363738Tax year: 52-53 weeks Tax year: partnership Tax year: partnership and least aggregate deferral Tax year: entity form Tax year: selection Tax year: personal service corporation Tax year: annualization Restoration of amounts received under a claim ofright Accrual method: who must use?

Accounting method: required method Accounting method: required method Accounting method: required method Accounting method: farming Accrual method: all events test Accrual method: all events test Accrual basis: economic performance and all events Economic performance: recurring items Economic performance: matching Economic performance and all events tests Accrual method: reserves Accounting method: change Accounting method: change Accounting method: change Accounting method: change Accounting method: change Installment method: eligibility Installment method: eligibility Installment method: eligibility Installment method: contract price and depreciationrecapture Installment method: depreciation recapture Installment method: calculations Installment method: calculations Installment method: calculations Installment method: calculations Installment method: calculations Installment method: calculations Installment method: calculations Installment method: imputed interest567812131415161920222324262728Accounting Periods and Methods3940Installment method: imputed interest Installment method: related parties Question/Problem41424344454647484950515253545556575859606162Topic Installment method: related parties Installment method: related parties Installment method: related parties Installment method: disposition of installmentobligations Installment method: disposition of installmentobligations Installment method: interest on deferred taxes Long-term contracts: completed contract method Percentage of completion method Percentage of completion method and lookback Percentage of completion method and lookback Inventories: lower of cost or market Inventories: capitalization Inventories: capitalization Inventories: capitalization Inventories: lower of cost or market LIFO: election Accounting method: change LIFO: change in methods LIFO: general LIFO: general Inventories: valuation Inventories: shrinkage18-3Unchanged Unchanged Status: Present3940Q/Pin Edition Prior Edition Unchanged Unchanged Unchanged Unchanged41424344Unchanged45Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged4647484950515253545556575859606162Unchanged New Unchanged1Unchanged Unchanged Unchanged456Unchanged Unchanged Unchanged Unchanged Unchanged New12345PROBLEMS123456Tax year: personal service corporation Claim of right Installment method: disposition of installmentobligations Dollar-value LIFOChange in accounting period Installment method3ESSAY123456Long-term contracts Change in accounting method Installment sales: interest versus principal LIFO: conformity Tax benefit rule and 1341 treatment Change in accounting method18-42009 Annual Edition/Test Bank TRUE/FALSE1.

At least 25% of the entitys gross receipts for the 12month period must be realized in the final 2 months of the 12-month period for three consecutiveyears. The corporationssalary deduction for the fiscal year ending September 30, 2009, is $240,000. Theincome for the period October 1, 2008 through December 31, 2008 was $15,000.

ANS: FThe personal service corporations deduction is limited to 0,000. The corporatetax rate is 15% on the first ,000 of income and 25% on income from ,001 to ,000.Aportion of Lauras October December 2008 income will be taxed at 25%. His gross income earned from January 1 through June 30, 2008, was,000.A doctors incorporated medical practice, generally, must have a business purpose for using a taxyear that does not end on December 31. A C corporation must use a calendar year as its tax year unless the corporation has a businessreason for using a tax year that is not a calendar year. An S corporations tax year, generally, is determined by the tax year of its principal shareholders.ANS: TThe corporation in this case is a personal services corporation. ANS: FA C corporation can have either a fiscal year or a calendar year as its tax year. ANS: FGenerally, an S corporation must adopt a calendar year. Partner As tax year ends June 30th, and Partners B and C use a calendar year. Red Corporation and Green Corporation are equal partners in the R & G Partnership.However, an S corporation may elect afiscal year under either of the following: A business purpose for the fiscal year can be demonstrated. Generally, a partnership elects any tax year that ends on the last day of a calendar month and thenthe partners must change their tax years to be the same as the partnership. If the partnership uses the calendar year to report its income,when partner A files his tax return for his tax year ending June 30, 2009, he will include his shareof partnership income for the calendar year 2008. Red Corporations tax year ends September 30th, and Green Corporation is a calendar year taxpayer.The fiscal year results in a deferral of not more than three months income, and the S corporation agrees to make required tax payments. ANS: FUnless the business purpose requirement is satisfied, the partnership tax year is determined in accordance with the following sequence: The partnership tax year must be the same as the tax year of the majority interest partners. For purposes of determining the partnerships tax year, there may be more than one principalpartner. ANS: TThe partner reports his income for the partnership tax year (in this case, the calendar year) thatends with or within his tax year. R & G Partnership must use September 30th as its tax year, unless it has a business purpose forusing a different tax year.