Franklin Company Began Business in 2008 and Has Consistently Used

question 44

True/False

Franklin Company began business in 2008 and has consistently used the cash method to report income from the sale of inventory in income tax returns filed for 2008 through 2012.As a result of an audit by the IRS, Franklin was required to change to the accrual method of accounting beginning with 2013. The net adjustment due to the change is a positive adjustment to income. The adjustment may be spread equally over 2013 and the three following years.

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Definitions:

Purely Competitive Seller

A seller operating in a market where goods are homogeneous, and there are no barriers to entry, allowing for many competitors.

Derived Demand

Demand for a factor of production or intermediate good that occurs as a result of the demand for another related final good or service.

MRP = MRC Rule

The principle that to maximize profit (or minimize losses), a firm should employ the quantity of a resource at which its marginal revenue product (MRP) is equal to its marginal resource cost (MRC), the latter being the wage rate in a purely competitive labor market.

Marginal Productivity

The additional output generated by employing one more unit of a specific factor of production while holding other factors constant.