Accounting Methods & Periods

Question 1

Brief description of what realization is

Answer 1

A transaction results in the receipt of property or a right capable of valuation

Question 2

What schedule is an individual taxpayers income reported

Answer 2

Schedule C

Question 3

What is not recognized as a cash basis taxpayer

Answer 3

Accounts receivable because no property has been received

Question 4

What method must businesses with inventory use

Answer 4

Accrual basis

Question 5

What is the installment method and when is it applied

Answer 5

It applies to gains on the disposition of property where at least one payment is to be received after the year of sale

Question 6

What is the installment method formula

Answer 6

Gross profit / Total Contract Price x Amount received in year

Question 7

What must be included in income in the year of sale

Answer 7

Any depreciation recapture under Sec. 1245, 1250 and 291

Question 8

What expenditures are capitalized

Answer 8

Any expenditure that increases the value of the property or substantially increase the property’s useful life

Question 9

What is a routine maintenance

Answer 9

Expected that the expenditure will be needed more than once during the asset’s life

Question 10

Where can the De Minimis Safe Harbor election not be used

Answer 10

Inventory, lad and certain types of spare parts

Question 11

What does a single UOP include

Answer 11

All components that are functionally interdependent