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The taxpayer had incorrectly been using the cash method of accounting. For 2017, the company voluntarily...

The taxpayer had incorrectly been using the cash method of accounting. For 2017, the company voluntarily changed to the accrual method, with the permission of the IRS. The unrealized receivables at the beginning of 2017 totaled $160,000. The unrealized receivables as of the end of 2017 totaled $80,000. As a result of the change in method for 2017, the IRC § 481 adjustment under the most favorable treatment will cause the company to:

a. Increase its income for 2017 by $160,000.

b. Increase its income for 2017 by $80,000.

c. Increase its income for 2017 by $30,000.

d. Increase its income for 2017 by $40,000.

e. Increase its income for 2017 by $20,000.

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Answer #1

a. Increase its income for 2017 by $160,000.

If they were already following accrual principle than this would be considered to be income of 2016 but as they were not so this will be added in income of 2016.

Also the income of 80,000 will already be considered as per actual principle so it is not an adjustment for change in principle.

Hope this meets your purpose.

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