Part IX: Tax Accounting Rules

Question 1

uniform capitalization rules

Answer 1

specifies certain things that must be capitalized.

Question 2

To whom do uniform capitalization rules apply?

Answer 2

Retailers whose avg. gross receipts for the preceding 3 yrs. exceed $10,000,000.

Question 3

Under uniform capitalization rules, which costs must be capitalized?

Answer 3

1. DM, DL, and MO, plus costs related to off-site storage of inventory (product costs).
2. Period costs (mktg., selling, and admin costs) do not need to be capitalized.

Question 4

In a period of rising prices, which costing method will result in a lower tax liability?

Answer 4

LIFO- CoGS is higher and taxable income is lower.

Bonus: Perpetual LIFO results in highest CoGS and lowest taxable NI.

Question 5

In a period of rising prices, which costing method will result in a higher tax liability?

Answer 5

FIFO- CoGS is lower and taxable income is higher.

Question 6

Accounting methods for a new corp. are made where?

Answer 6

On the initial tax return.

Question 7

C Corps. cannot use the cash method of accounting unless…

Answer 7

their avg. annual gross receipts for the previous 3 yrs. are $5,000,000 or less.