【正文】 are of partnership ine. PTS: 1 DIF: 1 REF: p. 164 | p. 165 OBJ: 1 NAT: AICPA FNReporting | AACSB Analytic MSC: 5 min 8. An orthopedic surgeon’s incorporated practice is located near a ski resort. Twothirds of his fees are earned in the months of January, February, and March. The corporation may be permitted to report its ine using a fiscal year ending March 31. ANS: T The practice is conducted through a personal service corporation (PSC). Although a PSC generally is required to use a calendar year to report its ine, an exception applies to seasonal businesses, such as in this case, permitting the corporation to adopt a natural business year. Here the natural business year appears to end in March. PTS: 1 DIF: 1 REF: p. 165 | p. 166 OBJ: 1 NAT: AICPA FNReporting | AACSB Analytic MSC: 2 min 166 2020 Comprehensive Volume/Test Bank 9. A partnership can elect to use a tax year other than a calendar year if the partnership’s CPA is too busy to prepare a calendar year return. ANS: F The IRS acknowledges only the need to conform the tax year to the natural business year. The CPAs work schedule is not considered relevant. PTS: 1 DIF: 1 REF: p. 165 OBJ: 1 NAT: AICPA FNReporting | AACSB Analytic MSC: 2 min 10. In 2020, a medical doctor who incorporated his practice elected a fiscal year ending September 30th. During the fiscal year ended September 30, 2020, he received a salary of $180,000. During the period from October 1, 2020 to December 31, 2020 the corporation paid the doctor a total salary of $40,000, and paid him $200,000 of salary in the following 9 months. The corporation’s salary deduction for the fiscal year ending September 30, 2020, is $240,000. ANS: F The personal service corporation’s deduction is limited to $160,000 {$40,000 + $40,000[(12 – 3)/3]}. PTS: 1 DIF: 1 REF: p. 166 | Example 6 OBJ: 1 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 5 min 11. Laura Corporation changed its tax year end from September 30th to December 31st in 2020. The ine for the period October 1, 2020 through December 31, 2020 was $15,000. The corporate tax rate is 15% on the first $50,000 of ine and 25% on ine from $50,001 to $75,000. A portion of Laura’s October – December 2020 ine will be taxed at 25%. ANS: T The tax for the short period is 3/12 of the tax on the annualized ine of $60,000 ($15,000 ? 12/3). The tax on $60,000 is: $50,000 ? 15% = $ 7,500 $10,000 ? 25% = 2,500 $10,000 To convert to the tax liability for 2 months, the following calculation is made: $10,000 ? 3/12 = $2,500 PTS: 1 DIF: 1 REF: p. 167 | p. 168 OBJ: 1 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 5 min 12. In 2020, T Corporation changed its tax year from ending each September 30th to ending each December 31st. The corporation earned $25,000 during the period October 1, 2020 through December 31, 2020. The tax on the annualized ine for the short period will be greater than the tax on $25,000 when the tax rates are progressive. Accounting Periods and Methods 167 ANS: T The annualized ine will be $100,000 [(12 months/3 months) ? $25,000]. The tax on the annualized ine equals 3/12 of the tax on $100,000. With progressive rates, the tax on $100,000 will be greater than 4 times the tax on $25,000. PTS: 1 DIF: 1 REF: p. 168 OBJ: 1 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 13. Snow Corporation was a calendar year corporation that sold all of its assets and liquidated as of April 30, 2020. The corporation is not required to annualize its ine for its final year of operations. ANS: T The purpose of annualizing ine is to prevent the taxpayer from taking undue advantage of the progressive tax rate schedule. Annualization is not required in the corporation’s first tax year, nor for its final tax year. PTS: 1 DIF: 1 REF: p. 168 OBJ: 1 NAT: AICPA FNReporting | AACSB Analytic MSC: 2 min 14. Ted, a cash basis taxpayer, received a $100,000 bonus in 2020 when he was in the 35% marginal tax bracket. In 2020, when Ted was in the 28% marginal tax bracket, it was discovered that the bonus was incorrectly puted, and Ted was required to refund $25,000 to his employer. As a result of the refund, Ted can reduce his 2020 tax liability by $8,750 (.35 ? $25,000). ANS: T Ted recognized ine in a high tax rate year (35%), but was required to refund the ine in a lower tax rate year. Under 167。 481 adjustment is included in 2020 gross ine. PTS: 1 DIF: 1 REF: p. 1618 | p. 1619 OBJ: 3 NAT: AICPA FNReporting | AACSB Analytic MSC: 5 min 21. Sandstone, Inc., has consistently included some factory overhead as a current expense, rather than as a cost of producing goods. As a result, the beginning inventory for 2020 is understated by $30,000. If Sandstone voluntarily changes accounting methods effective January 1, 2020, the adjustment to the inventory is a 167。S is not a seasonal business. a. Gamp。S may elect its tax year without regard to the partners’ tax years. e. None of the above. ANS: C A tax year ending September 30th will result in the least aggregate deferral. Yearend September 30 .5 ? 3 = December 31 .5 ? 9 = PTS: 1 DIF: 1 REF: p. 164 | p. 165 OBJ: 1 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 5 min 4. In regard to choosing a tax year for a business owned by individuals, which form of business provides the greater number of options in regard to the tax year? a. A C corporation formed by medical doctors to conduct their practice. b. A C corporation that is in the retail grocery business. c. A real estate partnership. d. An S corporation engaged in manufacturing. e. All of the above have the same options. ANS: B Answer a. is incorrect because a personal service corporation (PSC) generally must us