【正文】 S must use a tax year ending December 31st. c. Gamp。 481 adjustment can be spread over the current and three succeeding tax years. PTS: 1 DIF: 1 REF: p. 1618 | p. 1619 OBJ: 3 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 5 min 22. A cash basis taxpayer sold investment land in 2020. He received $35,000 in the year of sale and $105,000 in 2020. The cost of the land was $100,000. Under the installment method, the taxpayer would report a $10,000 gain in 2020. ANS: T The recognized gain for 2020 is calculated as follows: PTS: 1 DIF: 1 REF: p. 1619 | p. 1620 OBJ: 4 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 5 min 23. In the case of a sale reported under the installment method, each dollar collected is in part a recovery of cost and in part a taxable gain. ANS: T The gain is apportioned to each tax year in which collections on the installment contract are received. PTS: 1 DIF: 1 REF: p. 1620 OBJ: 4 NAT: AICPA FNReporting | AACSB Analytic MSC: 2 min 24. 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 ine. ANS: F The imputing of interest creates interest ine and reduces the amount of the capital gain. PTS: 1 DIF: 1 REF: p. 1622 | p. 1623 OBJ: 4 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 25. If interest paid is attributed to the taxpayer’s building which is under construction, the taxpayer must add the interest to the cost of the building. ANS: T The interest bees part of the basis of the building. The building’s basis is depreciated under MACRS. PTS: 1 DIF: 1 REF: Exhibit OBJ: 5 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 1610 2020 Comprehensive Volume/Test Bank 26. In 2020, Cashmere Construction Company enters into a contract to build a beach cottage for Martha and Rob for a total price of $500,000. Cashmere estimates the total cost to plete the cottage to be $400,000. In 2020, Cashmere incurred $300,000 of costs on the contract, and in 2020 the contract was pleted at a total cost of $425,000. Cashmere is not required to recognize any ine from the contract until 2020. ANS: T The Code contains an exception from the percentage of pletion method for home construction contracts. Thus, Cashmere can use the pleted contract method. PTS: 1 DIF: 1 REF: p. 1627 | p. 1628 OBJ: 5 NAT: AICPA FNReporting | AACSB Analytic MSC: 5 min 27. For a taxpayer who is required to use the percentage of pletion method, the taxpayer can elect to defer the recognition of ine and the related costs until the taxable year in which cumulative contract costs are at least 10 percent of the estimated contract costs. ANS: T PTS: 1 DIF: 1 REF: p. 1629 OBJ: 5 NAT: AICPA FNReporting | AACSB Analytic MSC: 2 min MULTIPLE CHOICE 1. Which of the following statements regarding a 5253 week tax year is not correct? a. The yearend 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. ANS: D The tax yearend must be the same day of the week in all years. Thus, a. is correct. With a 5253 week year, 371 days (53 ? 7) may be included in a tax year. Thus, b. is correct. Whether the tax year is 52 weeks or is 53 weeks is not elective. Thus, c. is correct. PTS: 1 DIF: 1 REF: p. 163 OBJ: 1 NAT: AICPA FNReporting | AACSB Analytic MSC: 5 min 2. Gold Corporation, Silver Corporation, and Copper Corporation are equal partners in the GSC Partnership. The partners’ tax yearends are as follows: Gold December 31st Silver June 30th Copper September 30th a. The partnership is free to elect any tax year. b. The partnership may use any of the 3 yearend dates that its partners use. c. The partnership must use a September 30th yearend. d. The partnership must use a June 30th yearend. e. None of the above. Accounting Periods and Methods 1611 ANS: D The June 30th yearend results in the least aggregate deferral. PTS: 1 DIF: 1 REF: p. 164 | p. 165 OBJ: 1 NAT: AICPA FNReporting | AACSB Analytic MSC: 5 min 3. Gold Corporation and Silver Corporation are equal partners in the Gamp。 481 adjustments, and the accounts payable for the inventory is a negative 167。 1341 treatment Unchanged 4 5 Change in accounting method Unchanged 5 164 2020 Comprehensive Volume/Test Bank TRUE/FALSE 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. ANS: T The corporation in this case is a “personal service corporation.” PTS: 1 DIF: 1 REF: p. 165 | p. 166 OBJ: 1 NAT: AICPA FNReporting | AACSB Analytic MSC: 2 min 2. A C corporation must use a calendar year as its tax year unless the corporation has a business reason for using a tax year that is not a calendar year. ANS: F A C corporation can have either a fiscal year or a calendar year as its tax year. PTS: 1 DIF: 1 REF: p. 163 OBJ: 1 NAT: AICPA FNReporting | AACSB Analytic MSC: 2 min 3. An S corporation’s tax year, generally, is determined by the tax year of its principal shareholders. ANS: F Generally, an S corporation must adopt a calendar year. However, an S corporation may elect a fiscal year under either of the following: ? A business purpose for the fiscal year can be demonstrated. ? The fiscal year results in a deferral of not more than three months ine, and the S corporation agrees to make required tax payments. PTS: 1 DIF: 1 REF: p. 165 OBJ: 1 NAT: AICPA FNReporting | AACSB Analytic MSC: 2 min 4