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:

Supply Chain Management

The management of the flow of goods and services, involving the movement and storage of raw materials, of work-in-process inventory, and of finished goods from point of origin to point of consumption.

Quality Chain

A sequence of activities or processes that aim to ensure and enhance the quality of products or services at every stage.

External Customers

Individuals or entities that purchase a company's products or services but are not part of the organization itself.

Internal Customers

Individuals or departments within an organization that receive services or products from other parts of the same organization.