In 2010,Swan Company Discovered That It Had for the Past

question 8

Multiple Choice

In 2010,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 2009 was $200,000,but $50,000 of the item was included in the ending inventory that year.

• A)The company should amend its 2009 tax return and reduce its income by $150,000.
• B)The company should change its accounting method in 2010,with a $200,000 positive § 481 adjustment which increases its 2010 taxable income.
• C)The company should change its accounting method in 2010,and reduce its 2010 income by $50,000,the amount of the negative § 481 adjustment to income.
• D)The company should change its accounting method in 2010 and recognize a $200,000 positive § 481 adjustment that will be spread over four years.
• E)None of the above.

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