Chapter 18 Tax

CHAPTER 18

ACCOUNTING PERIODS AND METHODS

Examination Questions

____1. Generally the all-events test does not require the matching of revenue from a sale with the estimated future costs of servicing goods under a warranty.

____2. A C corporation provides office security services to various businesses. The corporation has average annual gross receipts of $2,500,000. The corporation must use the accrual method of accounting.

____3. In 2011, Ace Builders enters into a contract to build a vacation home for Judith and Patrick. The vacation home is completed in 2013. Ace Builders may recognize income from the construction of the vacation home using the percentage of completion method or the completed contract method.

____4. 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 15 percent of the estimated contract costs.

5. The HAT Partnership has three corporate partners with taxable years and ownership interests in the venture as follows:

Tax Year Interest in

Partner Ending Partnership

H Inc. November 30 30%

A Inc. October 31 40%

T Inc. November 30 30%

a. A partnership must use the calendar year to report its income.

b. The partnership can elect to use an October year end.

c. Under the least aggregate deferral calculations, using a fiscal year ending October 31 will result in an aggregate deferral of 3.3 (11 X .30) with respect to T and H.

d. The partnership must use a November 30 year end.

e. None of the above.

6. The OWL Partnership has three equal corporate partners with taxable years and ownership interests in the venture as follows:

Tax Year Interest in

Partner Ending Partnership...