Todd Operates a Business Using the Cash Basis of Accounting

question 97

Multiple Choice

Todd operates a business using the cash basis of accounting.At the end of last year,Todd was granted permission to switch his sales on account to the accrual method.Last year Todd made $420,000 of sales on account and $64,000 was uncollected at the end of the year.What is Todd's §481 adjustment for this year?

• A) increase income by $420,000.
• B) increase income by $16,000.
• C) increase expenses by $64,000.
• D) increase expenses by $420,000.
• E) Todd has no §481 adjustment this year.

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Definitions:

Adjusted Cost

The cost that has been modified for adjustments like discounts, returns, or additional charges to reflect the true cost of purchase or production.

Cost of Goods Sold

Costs directly linked to the manufacturing of goods a business sells, covering both the cost of materials and labor.

Overapplied Manufacturing Overhead

Overapplied manufacturing overhead occurs when the allocated manufacturing overhead costs are more than the actual overhead costs incurred.

Underapplied Manufacturing Overhead

The situation where the actual manufacturing overhead costs are higher than the overhead costs allocated to products.