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had already included uncollected receivables in income, so
writing off the receivables reduced income only once.
b. Journal Entry No. 7
Respondent contends that journal entry No. 7 (a $24,000
deduction) should be made for 1989 rather than 1988 because (1)
the adjustment is for an inventory item, which reduces the
beginning inventory for 1989 and the cost of goods sold for 1989
by a like amount; (2) petitioners did not establish the events
and nature of the transactions which necessitated the inventory
writedown at the end of 1988; and (3) the writedown is proper
under the cost method of inventory accounting. We disagree.
Kane made journal entry No. 7 to reduce the fair market
value of 28 used cars to the lower of cost or market, which was
the dealership's method of inventory. This adjustment properly
reduced the dealership's income by $24,000 in 1988 and increased
its income by that amount in 1989.
c. Check No. 20862
Respondent contends that a deduction for check No. 20862 for
$2,000 should be disallowed because petitioners failed to
establish that Bob Wade Ford incurred the expense as an ordinary
and necessary business expense.
Petitioners offered a journal entry of $2,000 and Kane's
testimony. Wade told Kane he had cashed check No. 20862 to pay
cash bonuses to employees at Christmas. Petitioners point out
that Wade was called by respondent to testify and that although
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