In 2019, Swan Company Discovered That It Had for the Past

question 27

Multiple Choice

In 2019, Swan Company discovered that it had for the past 10 years capitalized as a production cost certain expenses that are properly classified as administrative expenses.The total amount of the expense for 2018 was $300,000, $60,000 of the item was included in the ending inventory that year and $240,000 was deducted as cost of goods sold.

• A)The company should amend its 2018 tax return and reduce its income by $240,000.
• B)The company should change its accounting method in 2019, with a $60,000 negative § 481 adjustment which decreases its 2019 taxable income.
• C)The company should change its accounting method in 2019, and increase its 2019 income by $60,000, the amount of the positive § 481 adjustment to income.
• D)The company should change its accounting method in 2019 and recognize a $60,000 negative § 481 adjustment that will be spread equally over 2019-2022.
• E)None of these.

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