In 2017, Swan Company Discovered That It Had for the Past

question 41

Multiple Choice

In 2017, 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 2016 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 2016 tax return and reduce its income by $240,000.
• B)The company should change its accounting method in 2017, with a $60,000 negative § 481 adjustment which decreases its 2017 taxable income.
• C)The company should change its accounting method in 2017, and increase its 2017 income by $60,000, the amount of the positive § 481 adjustment to income.
• D)The company should change its accounting method in 2017 and recognize a $60,000 negative § 481 adjustment that will be spread equally over 2017-20.
• E)None of the above.

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Definitions:

Basic Structure

The fundamental framework or underlying system that forms the basis of something.

Raymond Cattell

was a psychologist known for his pioneering work in personality theory, including the development of trait theory.

Source Traits

Fundamental dimensions of personality identified through factor analysis that underlie and give rise to surface traits.

Cardinal

Principal or most important; in psychology, it may refer to cardinal traits that dominate an individual's personality.