On an Involuntary Conversion in Which the Taxpayer Does Not

question 48

Multiple Choice

On an involuntary conversion in which the taxpayer does not buy replacement property within the replacement period,the gain on the involuntary conversion and any tax due must be reported:

• A)In the year the replacement period expires.
• B)In the year the involuntary conversion occurred.
• C)Never,because the tax year of the conversion would be closed.
• D)As soon as the taxpayer knows replacement property will not be purchased.

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Definitions:

FIFO

An accounting method for valuing the cost of goods sold that assumes the earliest items purchased are the first to be sold.

Weighted Average Method

An inventory costing method that assigns a cost to inventory items based on the average cost of all similar items in inventory, weighted by the quantities purchased at different prices.

LIFO

An inventory valuation method, "Last In, First Out," where the most recently produced or purchased items are recorded as sold first.

Periodic Inventory System

An inventory system that updates inventory balances and cost of goods sold at the end of an accounting period based on a physical count.