In 2012, Swan Company Discovered That It Had for the Past

question 38

Multiple Choice

In 2012, 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 2011 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 2011 tax return and reduce its income by $240,000.
• B)The company should change its accounting method in 2012, with a $60,000 negative § 481 adjustment which decreases its 2012 taxable income.
• C)The company should change its accounting method in 2012, and increase its 2012 income by $60,000, the amount of the positive § 481 adjustment to income.
• D)The company should change its accounting method in 2012 and recognize a $60,000 negative § 481 adjustment that will be spread equally over 2012-15.
• E)None of the above.

---

Definitions:

Cigarette

A narrow cylinder of finely cut tobacco rolled in paper for smoking.

Teenage Boy

A young male individual who is in the age range of 13 to 19 years.

Relationship

A connection or association between people, which may be based on emotions, behaviors, interactions, or social ties.

Sexual Response

The physiological and emotional reactions that occur in the human body during sexual activity.