The taxpayer had incorrectly been using the cash method of accounting. For 2017, the company voluntarily changed to the accrual method. The adjustment due to the change in method as calculated at the beginning of 2017 was $120,000 (positive). The adjustment as calculated as of the end of 2017 was $80,000 (positive). As a result of the change in method, the company must:
A)Increase its income for 2017 by $120,000.
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)None of the above.

Question

Quizplus · Accepted Answer

The adjustment for the change in accounting method is spread over four years. The difference between the beginning and end of 2017 adjustments is $40,000 ($120,000 - $80,000), but only a portion of this is recognized in 2017. The correct portion is $30,000.

The Taxpayer Had Incorrectly Been Using the Cash Method of Accounting