Big Homes Corporation Is an Accrual-Method Calendar-Year Taxpayer That Manufactures

question 94

Multiple Choice

Big Homes Corporation is an accrual-method calendar-year taxpayer that manufactures and sells modular homes. This year, for the first time Big Homes was forced to offer a rebate on the purchase of new homes. At year-end, Big Homes had paid $14,000 in rebates and was liable for an additional $8,500 in rebates to buyers. What amount of the rebates, if any, can Big Homes deduct this year?

• A)$14,000 because rebates are payment liabilities.
• B)$22,500 because Big Homes is an accrual-method taxpayer.
• C)$22,500 if this amount is not material, Big Homes expects to continue the practice of offering rebates in future years, and Big Homes expects to pay the accrued rebates before filing its tax return for this year.
• D)$14,000 because the $8,500 liability is not fixed and determinable.
• E)Big Homes is not entitled to a deduction because rebates are against public policy.

Apply the equity method for investments when significant influence is present.

Identify the requirements for consolidated financial statements.

Account for dividends and their effects on investments.

Understand the process and criteria for securitization of receivables.

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Definitions:

Accountant-Client Privilege

A legal principle that keeps communications between an accountant and their client confidential, similar to attorney-client privilege.

Ethical Violation

An action or behavior that goes against moral principles or professional standards, potentially leading to disciplinary measures.

Prenuptial Agreement

A legal document signed by a couple before marriage outlining the allocation of assets and financial responsibilities in the event of divorce.

Professional Indemnity Insurance

Insurance that protects professionals against legal costs and claims for damages from clients due to acts of professional negligence.