In 2011,Swan Company Discovered That It Had for the Past

question 22

Multiple Choice

In 2011,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 2010 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 2010 tax return and reduce its income by $240,000.
• B) The company should change its accounting method in 2011, with a $60,000 negative § 481 adjustment which decreases its 2011 taxable income.
• C) The company should change its accounting method in 2011, and increase its 2011 income by $60,000, the amount of the positive § 481 adjustment to income.
• D) The company should change its accounting method in 2011 and recognize a $60,000 negative § 481 adjustment that will be spread equally over 2011-14.
• E) None of the above.

---

Definitions:

Hot Dogs And Mustard

A classic food pairing where the mustard serves as a condiment for the hot dogs, enhancing flavor.

Price-Inelastic

A description of a good or service whose demanded quantity does not significantly change when its price changes, indicating low sensitivity to price.

Textbook Purchases

The act of buying books required for academic study, often specified by educational institutions.

Students' Income

The total earnings of students from various sources, including part-time jobs, scholarships, or family support.