Question 1. A retailer must actually receive a claim for refund from the customer before a deduction can be taken for the refund. a. True

1. A retailer must actually receive a claim for refund from the customer before a deduction can be taken for the refund.

a. True

b. False

2. A C corporation provides lawn maintenance services to various businesses and homeowners. The corporation has average annual gross receipts of $3,500,000. The corporation may use the cash method of accounting.

a. True

b. False

3. Franklin Company began business in 2010 and has consistently used the cash method to report income from the sale of inventory in income tax returns filed for 2010 through 2014. As a result of an audit by the IRS, Franklin was required to change to the accrual method of accounting beginning with 2015. The net adjustment due to the change is a positive adjustment to income. The adjustment may be spread equally over 2015 and the three following years.

a. True

b. False

4. 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 2014 is understated by $40,000. If Sandstone voluntarily changes accounting methods effective January 1, 2014, the positive adjustment to the inventory is a § 481 adjustment and $10,000 must be added to taxable income for each year 2014, 2015, 2016, and 2017.

a. True

b. False

5. A cash basis taxpayer sold investment land in 2014 for $200,000. He received $40,000 in the year of sale and $160,000 in 2015. The cost of the land was $80,000. Under the installment method, the taxpayer would report a $24,000 gain in 2014.

a. True

b. False

6. In the case of a sale reported under the installment method, gain is recognized in each year the seller collects on the installment contract.

a. True

b. False

7. If an installment sale contract does not charge interest on the sale of a capital asset, only capital gain will be recognized over the life of the contract.

a. True

b. False

8. When an accrual basis taxpayer finances the construction of its building by borrowing, the interest is added to the cost of the building.

a. True

b. False

9. In 2014, 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 complete the cottage to be $400,000. In 2014, Cashmere incurred $300,000 of costs on the contract, and in 2015 the contract was completed at a total cost of $425,000. Cashmere is notrequired to recognize any income from the contract until 2015.

a. True

b. False

10.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 10 percent of the estimated contract costs.

a. True

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