Cleo Perfume, Inc. - Page 12

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          Respondent claims that there is no evidence to prove the ASA                
          merchandise was included in petitioner's ending inventory for the           
          tax year ended June 30, 1990 or 1991.                                       
               We conclude that the ASA merchandise was included in                   
          petitioner's ending inventory for the tax years ended June 30, 1990         
          and 1991, and hence petitioner's cost of goods sold for those years         
          was not overstated.  Thus, petitioner received no tax benefit as a          
          result of mistakenly treating and reporting the ASA consigned               
          merchandise as a purchase.                                                  
               In reaching our conclusion that the ASA merchandise was                
          included in petitioner's 1990 and 1991 ending inventory, we find            
          that Mr. Rosales, petitioner's comptroller, recorded the                    
          transaction consistent with his understanding that the consigned            
          goods were acquired by purchase, and thus he included all unsold            
          goods in inventory.  We find compelling that on petitioner's tax            
          return filed for the year ended June 30, 1993, petitioner made an           
          adjustment to its beginning inventory when it realized the error in         
          its reporting of the consigned goods. (Rather than carry over the           
          ending inventory balance for the year ended June 30, 1992,                  
          petitioner reduced beginning inventory for the year ended June 30,          




               5(...continued)                                                        
                         Total goods available for sale                               
                    -    Ending inventory                                             
                         Cost of goods sold                                           




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