Nilo IncSold an Asset to PPQ Partnership,which Is Unrelated to Nilo

question 89

Multiple Choice

Nilo Inc.sold an asset to PPQ Partnership,which is unrelated to Nilo.PPQ immediately sold the property to Nilo Western Inc.,which is a 100% controlled Nilo subsidiary.The IRS could treat the two sales as one sale of the asset by Nilo to Nilo Western by applying the:

• A)Economic substance doctrine
• B)Assignment of income doctrine
• C)Step transaction doctrine
• D)Constructive payment doctrine

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Definitions:

Conversion Costs

The costs incurred to convert raw materials into finished products, including direct labor and manufacturing overhead.

Weighted-Average Method

The weighted-average method is a cost accounting technique used to calculate inventory and cost of goods sold by assigning an average cost to each unit, based on the weight of those units in beginning inventory and purchases made.

Equivalent Units

In cost accounting, this is a metric that represents the work accomplished by unfinished units as if they were fully completed units.

Conversion Costs

Conversion costs are the expenses incurred to convert raw materials into finished goods, typically including labor and overhead costs.