Question

In: Accounting

Green Corporation is required to change its method of accounting for federal income tax purposes. The...

Green Corporation is required to change its method of accounting for federal income tax purposes. The change will require an adjustment to income to be made over three tax periods. Joe, the sole shareholder of Green, wants to better understand the implications of this adjustment for E&P purposes. Joe gets dividend distributions from Green every year. Explain to Joe the impact of the adjustment on E&P.

Help with clear explanation please!

Solutions

Expert Solution

Taxpayer changes its accounting method ususally to make an adjustment to prevent double counting of the affected income or deducted item. Timing is very important to tax administration, and the IRS does not think it should be left to taxpayers. It is forbidden to change accounting methods, even from an incorrect to a correct one, without IRS permission. In many cases permission is granted automatically, but an application is still required.

When a taxpayer changes its accounting method, some income or deductions might never be taken into account. For example, if a cash method taxpayer earns income in Year 1 but does not receive payment until Year 2, it generally recognizes the income in Year 2. If it changes to the accrual method for Year 2, it can say that it should not recognize the income in Year 2 because on the accrual method it should have recognized the income in Year 1. The income could escape tax entirely if not for the required one-time adjustment.


Related Solutions

Green Corporation is required to change its method of accounting for federal income tax purposes. The...
Green Corporation is required to change its method of accounting for federal income tax purposes. The change will require an adjustment to income to be made over three tax periods. Joe, the sole shareholder of Green, wants to better understand the implications of this adjustment for E&P purposes. Joe gets dividend distributions from Green every year. Explain to Joe the impact of the adjustment on E&P.
1. Which of the following expenses, if any, qualify as deductible for Federal income tax purposes?...
1. Which of the following expenses, if any, qualify as deductible for Federal income tax purposes? a. Contribution to a Roth IRA. b. Contribution to a traditional IRA c. Contributions to a Coverdell Education Savings Account. . d. Contributions to a qualified tuition program (§ 529 plan) 2. If a residence is used primarily for personal use (rented for fewer than 15 days per year), which of the following is correct? a. No expenses are deductible. b. No income is...
Tax Drill - Deferred Tax Asset Ion Corporation has income tax expense/payable for book purposes of...
Tax Drill - Deferred Tax Asset Ion Corporation has income tax expense/payable for book purposes of $200,000 and $250,000 for tax purposes. Assume that Ion will only be able to use $30,000 of any deferred tax asset with the balance expiring. As a result, Ion will record a deferred tax asset of $ 50 (incorrect) and a valuation allowance of $ 20 (incorrect) . ???
Ernesto Enterprises uses the wage-bracket method to determine federal income tax withholding on its employees. Find...
Ernesto Enterprises uses the wage-bracket method to determine federal income tax withholding on its employees. Find the amount to withhold from the wages paid each employee. If an amount is zero, enter "0". Enter all amounts as positive numbers. Click here to access the Wage-Bracket Method Tables. Employee Marital Status No. of Withholding Allowances Payroll Period W=Weekly S=Semimonthly M=Monthly D=Daily Wage Amount to Be Withheld Ed Boone M 1 W $1,250             $ Ray Ortega S 1 W 695             Carl Lopez...
12.For federal income tax purposes a partnership is a.a pass-through entity. b.sometimes taxed as a separate...
12.For federal income tax purposes a partnership is a.a pass-through entity. b.sometimes taxed as a separate entity. c.taxed as a C corporation. d.not permitted to exceed 100 partnerships (general and limited). 13.A general partner a.has the right to inspect partnership books and records at all reasonable times. b.may copy partnership books and records with the consent of the managing partner. c.may not transfer his/her partnership economic interest without the written consent of all other partners (or partner),. d.cannot receive a...
ACCORDING TO 2019 TAX PURPOSES: Harrison Corporation reported pretax book income of $600,000. Tax depreciation exceeded...
ACCORDING TO 2019 TAX PURPOSES: Harrison Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received$300,000 of tax-exempt municipal bond interest. The company’s prior-year tax Return showed taxable income of $50,000. Compute the company’s deferred income tax expense or benefit.
1. Before the provision for Federal income tax, Karas Corporation had book income of $400,000 for...
1. Before the provision for Federal income tax, Karas Corporation had book income of $400,000 for the current year. The book income included $100,000 of dividends received from a 15% owned domestic corporation. What was Karas Corporation's taxable income for the current year? a.$300,000 b.$335,000 c.$350,000 d.$400,000 2. Hirsch, Incorporated, is a calendar year corporation that has had revenues of less than $500,000 since inception. In 2017, Hirsch had a net operating loss that was able to be used in...
Based on the wage-bracket method, what is the federal income tax withholding for an employee who...
Based on the wage-bracket method, what is the federal income tax withholding for an employee who is married, paid on a bi-weekly basis, has two federal withholding allowances, and earns $1,317? $63 $120 $67 Which of the following groups may not be paid less than the federal minimum wage? 1.Full-time students 2.Tipped employees 3.State government workers Which must a company have before hiring employees? 1.Employer Identification Notice 2.Employer Identification Number 3.All the above An employer designates any 7-day period as...
Our accounting firm has won the engagement to be the new federal income tax consultant for...
Our accounting firm has won the engagement to be the new federal income tax consultant for a fortune 500 company. In the course of preparing the federal income tax returns for its tax year ending December 31, 2017, we reviewed the company's federal income tax returns for recent years. Our review discovered a large error in the company's computation of its domestic production activities deduction. The error is the result of misunderstanding the law, and was repeated on all of...
X Corporation appropriately uses the installment-sales method of accounting to recognize income in its financial statements....
X Corporation appropriately uses the installment-sales method of accounting to recognize income in its financial statements. The following information is available for 2020 and 2021. 2020 2021 Installment sales $800,000 $1,000,000 Cost of installment sales 480,000 650,000 Cash collections on sales of 2020 300,000 500,000 Cash collections on sales of 2021 -0- 400,000 Compute the amount of realized gross profit recognized in each year. 2020 2021
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT