In 2014,Swan Company Discovered That It Had for the Past

question 86

Multiple Choice

In 2014,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 2013 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 2013 tax return and reduce its income by $240,000.
• B)The company should change its accounting method in 2014,with a $60,000 negative § 481 adjustment which decreases its 2014 taxable income.
• C)The company should change its accounting method in 2014,and increase its 2014 income by $60,000,the amount of the positive § 481 adjustment to income.
• D)The company should change its accounting method in 2014 and recognize a $60,000 negative § 481 adjustment that will be spread equally over 2014-17.
• E)None of these.

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Definitions:

Administration Route

The path by which a drug, fluid, poison, or other substance, is taken into the body.

Nose

The part of the face that houses the nostrils and organs of smell and forms the beginning of the respiratory tract.

Economies Of Scale

Cost advantages reaped by companies when production becomes efficient, leading to a decrease in the per-unit cost as output increases.

Diseconomies Of Scale

The situation when a firm's costs per unit increase as it produces more output, opposite of economies of scale.