The taxpayer had incorrectly been using the cash method of accounting. For 2014, the company voluntarily changed to the accrual method. The adjustment due to the change in method as calculated at the beginning of 2014 was $120,000 (positive). The adjustment as calculated as of the end of 2014 was $80,000 (positive). As a result of the change in method, the company must:
A) Increase its income for 2014 by $120,000.
B) Increase its income for 2014 by $80,000.
C) Increase its income for 2014 by $30,000.
D) Increase its income for 2014 by $40,000.
E) None of the above.

Question

Quizplus · Accepted Answer

The adjustment is spread over four years. The difference between the beginning and end of 2014 is $40,000 ($120,000 - $80,000), and one-fourth of this amount, $30,000, is recognized in 2014.

The Taxpayer Had Incorrectly Been Using the Cash Method of Accounting