The Taxpayer Had Incorrectly Been Using the Cash Method of Accounting

question 29

Multiple Choice

The taxpayer had incorrectly been using the cash method of accounting. For 2017, the company voluntarily changed to the accrual method. The adjustment due to the change in method as calculated at the beginning of 2017 was $120,000 (positive) . The adjustment as calculated as of the end of 2017 was $80,000 (positive) . As a result of the change in method, the company must:

• A)Increase its income for 2017 by $120,000.
• B)Increase its income for 2017 by $80,000.
• C)Increase its income for 2017 by $30,000.
• D)Increase its income for 2017 by $40,000.
• E)None of the above.

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Definitions:

Percent of Sales Method

A financial planning tool used to forecast future revenues, expenses, or balance sheet figures as a percentage of sales.

Uncollectible Accounts Receivable

Accounts receivable that are considered to be uncollectible due to the inability of the customers to pay.

Journal Entries

Recorded transactions in the accounting system, documenting financial changes in accounts.

Percent of Sales

Percent of sales is a financial analysis tool that helps in estimating how certain accounts, like revenue and expenses, will vary in proportion to changes in sales.