Golden Gate Litho - Page 4

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               Petitioner has used the cash receipts and disbursements                
          method of accounting (cash method) for tax purposes since its               
          incorporation.  Petitioner reports sales at the time it receives            
          payment.  Petitioner deducts the cost of materials and supplies             
          for each printing job in the year of purchase and deducts all               
          expenses in the year paid.  Petitioner did not report any                   
          beginning or ending inventory on its tax returns and did not use            
          inventory accounting for either tax or financial accounting                 
          purposes for the year at issue or the immediately preceding tax             
          year.  Since its incorporation, petitioner has reported no                  
          opening or closing inventories on its tax returns.                          
               Petitioner reported its income under the cash method for the           
          taxable years ending May 31, 1989 through 1995, as follows:                 
                                                  Taxable Year Ending                 
                       5/31/89 5/31/90   5/31/91    5/31/92     5/31/935/31/94  5/31/95       
          Gross receipts    $1,450,643  $1,462,904  $1,678,433   $1,499,946  $1,399,727  $1,357,166  $1,135,232
          Cost of goods                                                               
          sold        939,217    890,986   1,026,832900,459    834,879     94,623     759,113
          Gross profit511,426    571,918     651,601599,487    564,848    462,543     376,119
          Total deductions468,360    585,688     615,220562,412    541,842    531,526     480,820
          Net income1 43,066    (13,770)     36,38137,075     23,006    (68,983)   (104,701)
          Other income28,821     18,238      16,68317,147     21,083     15,346      12,797
          Special deductions     -0-670       3,064   4,222      6,293      6,007       6,117
          Taxable income51,887      3,798      50,00050,000     37,796    (59,644)(98,021)     
          Schedule A (cost of                                                         
          goods sold):                                                                
          Inventory                                                                   
          beginning year-0-     -0-       -0-         -0--0-     -0-      -0-           
          Purchases   546,827    483,172     577,861449,492    380,327    420,730    282,490
          Labor       335,783    375,021     395,210377,987    382,311    396,928    324,124
          Union benefits30,004     25,460      28,15332,383     37,010     35,969     29,624
          Misc. O/S                                                                   
          services    -0-     -0-      18,468   30,995     29,594     33,595    116,410
          Sales Tax   20,543       -0-       -0-         -0--0-     -0-       -0-          
          Freight     6,060     7,333       7,1409,602      5,637      7,401      6,465
          Inventory                                                                   
          end year       -0-  -0-       -0-         -0-         -0--0-       -0-          
          Total       939,217   890,986   1,026,832900,459    834,879    894,623    759,113
          Schedule E                                                                  
          (compensation of                                                            
          officers):                                                                  




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