Identify Which of the Following Statements Is True

question 32

Multiple Choice

Identify which of the following statements is true.

• A)The basic accounting method elections that are used by the seller in intercompany transactions do not override the intercompany transaction rules.
• B)P and S are members of an affiliated group that has filed consolidated tax returns for a number of years. The sale of inventory by P, which was acquired from S in an intercompany transaction, outside the affiliated group triggers the restoration of gain by S.
• C)Last year, P, S, and T Corporations have filed consolidated tax returns for a number of years. Last year P Corporation sold land (a Sec. 1231 asset)to T at a $75,000 profit. The gain was deferred by P in last year's consolidated tax return. P sold the T stock to Mike on June 1 of this year. The stock sale will require P to report in its income the gain that was deferred on the land sale.
• D)All of the above are true.

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Definitions:

Profit Margin

A financial metric indicating the percentage of revenue that exceeds the cost of goods sold, showing how much profit a company makes on sales.

Net Income

The sum a company holds as profit once it has subtracted expenses and taxes from its aggregate revenue.

Net Sales

The amount of sales revenue left after deducting sales returns, allowances, and discounts.

Cash Basis

An accounting method where revenues and expenses are recorded only when cash is received or paid, respectively.