Ind.__2007_Chap._11 - Chapter I11 Accounting Periods and...

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Chapter I11 Accounting Periods and Methods Discussion Questions I11-1 In the long run, the amount of income reported by a taxpayer will generally be the same regardless of the accounting methods used by the taxpayer. In a given year the amount of income reported by a taxpayer can vary significantly depending on the accounting method used by the taxpayer. p. I11-2. I11-2 The accounting methods used by a taxpayer can accelerate or defer the recognition of income, and, thereby, change when the tax must be paid. Also, because of the progressive tax rate structure, taxes can be saved by spreading income over several years, rather than having income bunched into one year, pushing the taxpayer into higher brackets. p. I11-2. I11-3 The tax year must coincide with the year used to keep books and records. Taxpayers who do not have books must use the calendar year. Most individuals who are wage earners do not keep books and, therefore, must file using a calendar year. p. I11-2. I11-4 Once a tax year is elected, it cannot be changed without IRS approval. The appropriate tax year can make record keeping easier. If the year ends during the slow season, inventories may be lower and employees are available to take inventory and perform other accounting duties associated with the year end. pp. I11-4 and I11-6. I11-5 A partnership must use the same tax year of the partners who own the majority of the partnership income and capital. If the majority does not have the same tax year the partnership must use a taxable year, which is the same as the taxable year of all its principal partners (or the same taxable year of all its principal partners who do not have such taxable year concurrently change). If the principal partners do not have the same tax year, a taxable year that results in the least aggregate deferral of income to the partners must be used. Partnerships may also elect a natural business year even if it differs from the tax year of its partners. Also, a partnership may elect a fiscal year involving a deferral period of three months or less if the partnership makes a required tax payment. pp. I11-3 and I11-28. I11-6 Yes. S corporations are generally required to adopt a calendar year unless either the corporation has a natural business year or elects to make required tax payments. Rules similar to those imposed upon partnerships (see the answer to Question I11-5 above) are applied to S corporations. pp. I11-3 and I11-4. I11-1
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I11-7 The 52- to 53- week year is especially useful to businesses with inventories. For example, a manufacturer might choose a 52- to 53- week year that ends on the last Friday in December so as to permit the inventory to be taken over the weekend without interfering with the company's manufacturing process. p. I11-3. I11-8
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This note was uploaded on 04/15/2008 for the course ACC b95.2302 taught by Professor Dansky during the Fall '08 term at NYU.

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Ind.__2007_Chap._11 - Chapter I11 Accounting Periods and...

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