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profit margins of similarly sized companies within the scrap
metal industry:
Lyell Metal’s Reported Reported Gross Profit Margins
Year Gross Revenue Cost-of-Goods Sold Lyell Metal Industry Average
1989 $20,548,908 $14,434,001 29.75% 22.3%
1990 17,489,213 13,137,949 24.87% 20.3%
1991 13,222,367 10,094,291 23.66% 21.4%
For 1989 through 1992, Lyell Metal filed Federal income tax
returns as an S corporation. For each year in issue, Lyell Metal
included in its claimed cost-of-goods sold calculation purchases
of scrap metal by check and by cash.
In preparing Lyell Metal’s Federal income tax returns for
the years in issue and in calculating Lyell Metal’s cost-of-goods
sold as claimed on Lyell Metal’s tax returns with respect to
scrap metal purchased by cash, Lyell Metal’s accountant relied
primarily on and used the total dollar amount of the canceled
checks made payable to cash and the inventory records. For the
portion of 1991 and for 1992 during which copies of the customer
receipts and cash register tapes were retained, the accountant
also used the retained copies of the receipts and cash register
tapes that reflected purchases of scrap metal by cash.
The following schedule reflects, for 1989 through 1992,
Lyell Metal's calculation of its total purchases of scrap metal
by check and by cash and Lyell Metal's total cost-of-goods sold
as reported on Lyell Metal's Federal income tax returns.
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Last modified: May 25, 2011