• Do the following problems on Section 481 (Two Parts):

  A. Corporation X is a calendar -year taxpayer. In 2010, it changes from cash receipts and disbursements method of accounting to the accrual method of accounting. As of December 31, 2009, Corporation X has $80,000 of accounts receivable (that have not been reported) and $30,000 of accounts payable (that have not been deducted). Compute Corporation X's net section 481(a) adjustment.

  B. Company Z has reported it's income under the cash receipts and disbursement method since it's formation in 2004. The IRS requires Company Z to change to the accrual method beginning in 2009. Company Z was subject to a flat rate of 30% from 2004 to 2008 and a flat rate of 35% in 2009. Company Z had a $1,000,000 of taxable income (computed under the cash method) for 2007 and 2008. Company Z has $1,000,000 of taxable income (computed under the accrual method) for 2009. Assume that Company Z's section 481(a) adjustment is $90,000. Calculate the limitation (if any) imposed by section 481 (b)(1).

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Answer rating: 100% (QA)

Section 481a Adjustment for Corporation X The net Section 481a adjustment for Corporation X is calculated by determining the difference between the am... View the full answer