The Taxpayer Has Consistently, but Incorrectly, Used an Allowance for Bad

question 87

Multiple Choice

The taxpayer has consistently, but incorrectly, used an allowance for bad debts. At the beginning of the year, the balance in the allowance account is $90,000.

• A) If the IRS examines the taxpayer's return and requires the taxpayer to change accounting methods, the taxpayer will be required to recognize an additional $90,000 of income (one-half in the current year and one- half in the following year) as the adjustment due to the change in accounting methods.
• B) If the taxpayer voluntarily changes methods, the $90,000 adjustment can be spread over the current and three following years.
• C) If the taxpayer voluntarily changes methods, the $90,000 reserve can be used to absorb bad debts until the account balance is zero.
• D) If the IRS examines the taxpayer's return, no adjustment to the reserve account will be required if the balance is consistent with prior bad debt experience.
• E) None of the above.

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Definitions:

Sieve Elements

Living cells that compose sugar-conducting sieve tubes of phloem. Each sieve tube consists of a stack of sieve elements that meet end to end at sieve plates.

Osmosis

The movement of water molecules through a semipermeable membrane from a region of lower solute concentration to higher concentration.

Sink Cells

Cells that act as repositories for the products of photosynthesis or other metabolic activities, often located in different parts of a plant.

Sugars

Simple carbohydrates with a sweet taste, essential for energy in living organisms, and serve as building blocks for more complex carbohydrates.