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$78,464 - $53,462) to account for the change to the accrual
method as follows:
(1) Respondent reduced petitioner's gross receipts or sales
by $53,462 computed as follows:
Accounts receivable at close of year, less 1$196,916
Accounts receivable at beginning of year (250,378)
Adjustment to gross receipts or sales (53,462)
1Respondent used the amount of accounts receivable provided
during the examination of petitioner's return rather than the
amount reflected on petitioner's balance sheet for the fiscal
year ending May 31, 1990.
(2) Respondent increased petitioner's income by $11,000 to
reflect an $11,000 reduction of petitioner's cost of goods sold4
to account for inventories as follows:
Work in process at beginning of year, less $150,000
Work in process at end of year (161,000)
Reduction in cost of goods sold (11,000)
(3) Respondent increased petitioner's income by $78,464 to
reflect a $78,464 reduction of petitioner's cost of goods sold
to account for purchases on the accrual method as follows:
Accounts payable at close of year, less 1$20,120
Accounts payable at beginning of year 2(98,584)
Reduction in cost of goods sold (78,464)
1 This amount is the portion of the accounts payable at the
close of the taxable year that is related to cost of goods sold.
It does not include $5,111 in accounts payable related to
operating expenses and $11,250 in salaries and wages payable to
Mr. Asher.
2 This amount includes all accounts payable ($86,334), plus
all salaries and wages payable ($12,250) at the beginning of the
4 The notice of deficiency identifies the $11,000 increase
as an adjustment to "work in process".
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Last modified: May 25, 2011