The taxpayer had consistently used the cash method of accounting even though inventories were a material income- producing factor to its business and average annual gross receipts in the prior three-year period exceeded $25 million.The taxpayer decided to voluntarily change to the accrual method of accounting.The adjustment to income due to the change was that the correct beginning balances for the year of the change as follows: $600,000 for inventories, $300,000 for accounts receivable, and $120,000 for accounts payable.The adjustment due to the change in accounting method is:
A)A positive adjustment for $1,020,000.
B)A positive adjustment for $900,000.
C)A positive adjustment for $780,000.
D)A positive adjustment for $600,000.
E)None of these.

Question

Quizplus · Accepted Answer

The adjustment due to the change in accounting method is calculated by adding the beginning balances for inventories and accounts receivable, and then subtracting the beginning balance for accounts payable. This results in a positive adjustment of $780,000 ($600,000 + $300,000 - $120,000).

The Taxpayer Had Consistently Used the Cash Method of Accounting