Which of the following is a true statement about a request for a change in accounting method?

A. Some requests are automatically granted.

B. Most requests require the permission of the Commissioner.

C. Many requests require payment of a fee and a good business purpose for the change.

D. Form 3115 is required to be filed with a request for change in accounting method.

E. All of these are true.

Answer: All of these are true

Todd operates a business using the cash basis of accounting. At the end of last year, Todd was granted permission to switch his sales on account to the accrual method. Last year Todd made $420,000 of sales on account and $64,000 was uncollected at the end of the year. What is the Todd's §481 adjustment for this year?

A. increase income by $420,000

B. increase income by $16,000

C. increase expenses by $64,000

D. increase expenses by $420,000

E. Todd has no §481 adjustment this year.

Answer: increase income by $16,000

Which of the following is a true statement about impermissible accounting methods?

A. An impermissible method is adopted by using the method to report results for two consecutive years.

B. An impermissible method may never be used by a taxpayer.

C. Cash method accounting is an impermissible method for partnerships and Subchapter S electing corporations.

D. There is no accounting method that is impermissible.

E. None of these is true.

Answer: An impermissible method is adopted by using the method to report results for two consecutive years

Which of the following is a true statement about accounting for business activities?

A. An overall accounting method can only be adopted with the permission of the Commissioner.

B. An overall accounting method is initially adopted on the first return filed for the business.

C. The cash method can only be adopted by individual taxpayers.

D. The accrual method can only be adopted by corporate taxpayers.

E. None of these is true.

Answer: An overall accounting method is initially adopted on the first return filed for the business

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

A. Spouse when the taxpayer is an individual.

B. A partner when the taxpayer is a partnership.

C. Brother when the taxpayer is an individual.

D. A minority shareholder when the taxpayer is a corporation.

E. All of these are related parties.

Answer: A minority shareholder when the taxpayer is a corporation

Manley operates a law practice on the accrual method and calendar year. At the beginning of the year Manley's firm had an allowance for doubtful accounts with a balance of $15,000. At the end of the year, Manley recorded bad debt expense of $23,000 and the balance of doubtful accounts had increased to $18,000. What is Manley's deduction for bad debt expense this year?

A. $23,000

B. $3,000

C. $26,000

D. $5,000

E. $20,000

Answer: $20,000