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GAAP Tax Basis Q & A #312526

Course Overview

Credit

Amount

CPA

Course Author: Steven C. Fustolo, CPA Field of Study (CPA): Accounting

Course Description

Course publication/revision date: This course was updated on 1/19/2026.

This course is divided into two sections. The purpose of Section I is to review unusual reporting and disclosure issues that develop in practice including questions such as how to disclose life insurance, leases, catastrophes, agreements not to compete, and investments. Section II deals with how to disclose and present tax-basis financial statements. Most of the course is presented in a Q & A format.

Table of Contents

SECTION 1: GAAP Q & A8

I. BALANCE SHEET	8
A. Comparative Statements/ Individual Statements	8
B. Property and Equipment	10
REVIEW QUESTIONS	29
C. Cash and Investments	32
REVIEW QUESTIONS	50
D. Receivables	54
E. Inventories	57
F. Cash Value of Life Insurance	64
G. Intangible Assets	66
REVIEW QUESTIONS	83
H. Current Liabilities	88
I. Notes Payable	90
J. Other Liabilities	95
K. Stockholders' Equity	105
REVIEW QUESTIONS	114
II. REVENUE AND EXPENSES	119
A. Income Statement Title	119
B. Involuntary Conversions	119
C. Reporting Revenue Gross Versus Net	119
D. Accounting for Revenue from Prepaid Stored-Value Cards	121
REVIEW QUESTIONS	131
E. Depreciation and Amortization	134
F. Other Expense and Income Items	143
REVIEW QUESTIONS	150
G. Cash Flows	154
H. Concentrations	167
I. Fiscal Years	174
REVIEW QUESTIONS	176
J. Personal Financial Statements	180
K. Related Party Disclosures and Transactions	183
L. Miscellaneous Disclosures	189
M. Income and Other Taxes	202
REVIEW QUESTIONS	218
N. Dealing with Acts of God, Natural Disasters and Terrorist Acts	223
O. Accounting for Entities in Bankruptcy	234
P. Accounting for Website Development Costs	235
Q. Fair Value Disclosures	240
R. Subsequent Events Under GAAP	250
REVIEW QUESTIONS	255
S. Development Stage Entities and Start Up Disclosures	260
T. Liquidation Basis of Accounting	262
U. Using Pushdown Accounting	265
REVIEW QUESTIONS	268

SECTION 2: TAX-BASIS Q&A272

A. Overview	272
B. Present Reporting and Disclosure Authority- Tax Basis	272
C. Revised Definition of Tax-Basis Financial Statements	272
D. When to Use and Not to Use Tax-Basis Financial Statements	273
E. Deferred M-1s Are Eliminated with Tax-basis financial statements	274
F. Nontaxable Revenue and Nondeductible Expenses- Permanent Differences	275
G. Converting to Tax-Basis Financial Statements	276
H. Cash Flows Statement- Tax-Basis Financial Statements	280
I. Tax-Basis Financial Statement Titles	280
J. Disclosure and Financial Statement Requirements- Tax Basis	283
K. Agreements Not to Compete- Tax-Basis Financial Statements	287
L. Using the Tax Basis Based on a Method That Differs From the Income Tax Return	287
M. Tax-Basis Financial Statements- State Tax-Basis of Accounting	290
N. Disregarded Entities and Tax-Basis Financial Statements	290
O. Accounting for Tax Carryovers in Tax-Basis Financial Statements	293
P. Tax- Change in Accounting Method- IRC 481(a)	296
Q. Presenting Insolvency in Tax-Basis Financial Statements	297
R. Involuntary Conversions and Tax Basis	300
S. Sample Tax-Basis Financial Statements, Reports and Disclosures	301
REVIEW QUESTIONS	322

INDEX327

GLOSSARY328

Course Details

Author: Steven C. Fustolo, CPA

Mr. Fustolo is a partner with the Boston CPA firm of James J. Fox & Company and Director of the National Tax Institute, Inc. He is a frequent lecturer and author of numerous tax and accounting issues affecting closely held businesses. An AICPA author, Mr. Fustolo’s articles are regularly featured in The Practical Accountant and other publications. He is the author of Practice Issues: Compilation and Review, Accounting and Auditing Reference Guide, Everything You Never Wanted to Know About GAAP, Enron: Fraud, Deception and the Aftermath, FASB Review for Industry, and FASB, SSARS and SAS Update and Review and numerous other books and manuals that have been published by Practitioners Publishing Company (PPC) and Commerce Clearing House (CCH). He is the recipient of several Outstanding Discussion Leader awards from many professional organizations including the New York and Florida Societies of CPAs. Mr. Fustolo’s course entitled FASB, SSARS and SAS Update and Review continues to receive accolades and is regarded as one of the top live CPE programs in the country today with ratings that average 4.91 on a scale of 5.0. He speaks regularly for professional groups including being a guest lecturer at the AICPA Advanced Accounting and Auditing Technical Symposium. Mr. Fustolo is the recipient of the Elijah Watts Sells Award (AICPA) and Silver Medal (Massachusetts) for scores received on the CPA Examination.

Publication/Revision Date: 1/19/2026

Course Exam Questions (online): 80 (multiple-choice)

Program Delivery Method: NASBA QAS Self-Study

Available Formats of Course Text: PDF only or PDF plus printed copy sent in the mail

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None

* This program is appropriate for professionals at all organizational levels.

Sponsor ID Numbers

National Registry of CPE Sponsors ID: 107615

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Section I

Recall the accounting treatment for non-monetary exchanges
Recognize the formula for measuring an impairment of real estate
Identify the accounting for different types of investments such as securities, investments using the equity method, and partnerships
Recognize the types of information that should be used in computing the allowance account for trade receivables
Recognize how FIFO inventory is valued under the inventory rules
Recall certain inventoriable costs
Recall the GAAP rules to account for an intangible asset with a finite useful life
Identify the accounting for environmental contamination costs
Identify examples of costs associated with exit activities
Recognize how an entity should account for revenue when treated as an agent
Identify options to avoid having to maintain two depreciation schedules
Recognize how to account for certain transactions on the statement of cash flows
Identify examples of group concentrations
Recognize some of the results from the net operating loss rules in tax reform
Identify the basic accounting for fresh start reporting
Identify how web development costs are accounted for during certain stages of development
Recognize when an entity may elect the fair value option and identify some of the eligible items for which the option is available
Recognize the basic rule for the liquidation basis of accounting
Understand How to account for the Pass-Through Entity (PTE) tax in financial statements

Section II

Recognize some of the M-1 differences that do not apply to tax-basis financial statements
Recognize how to account for an accounting change in tax-basis financial statements
Recall how to account for and present nontaxable and nondeductible items in tax-basis financial statements
Identify the disclosure requirements for tax-basis financial statements
Recognize the appropriate and inappropriate financial statement titles for tax-basis financial statements.