【正文】 s payable for the inventory is a negative 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。 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。S is not a seasonal business. a. Gamp。S must use a tax year ending December 31st. c. 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