1. Which of the following can use "cash method" accounting?

(1) Certain farming businesses
(2) Individuals
(3) Corporations with prior years gross annual receipts not exceeding $5 million per year and no income producing merchandise for sale
(4) An art gallery with extensive inventories
(5) Partnership with a C Corp partner that produces and sells merchandise as an income-producing factor and gross receipts in excess of $10 million last year

A) 1, 2, and 3 only
1, 3, and 4 only
2, 3, and 5 only
D) 4 and 5 only

2. All of the following are true statements EXCEPT?

A) Changing from cash to accrual accounting is acceptable practice
B) Hybrid accounting is a combination of both cash and accrual
C) An accounting period of Oct. 1 to Sept. 30 is known as fiscal year
D) Constructive receipt income can be carried forward into the next year

3. Johnson Plumbing Supply Company is using LIFO inventory system during an inflationary period. If the company changes over to FIFO method, which of the following will be TRUE?

A) Net business income will be reduced
Tax liability will be higher
Most recently added inventory will be moved out first
D) Tax liability will be lower

4. All of the following statements concerning Net Operating Losses (NOL) are correct EXCEPT:

A) There's a 20-year carry forward for NOL not used
There's a three-year carry back on casualty losses
There's a seven-year carry back on farming losses
D) Most NOL items have a two-year carry back

5. A long-term contract was entered into between the State of Florida and Tower Builders Company (a large national builder with gross annual receipts in excess of $50 million each year) to complete a bridge project. If they elect to use percentage-of completion method, which of the following are TRUE?

(1) Tower Builders can use the completed contract method if they choose
(2) Most long-term contracts are percentage-of-completion
(3) Long-term contracts can be completed in the same year if requested
(4) Completed Contract method allows the business to realize all revenue in year one
(5) The formula currently used is Contract Price Reportable = Total Contract Price x [Period Cost/Total Est. Cost]

A) 1 and 2 only
2 and 5 only
3, 4, and 5 only
3 and 5 only
E) 1, 2, 3, 4, and 5

Answer Key

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