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was either discarded or transferred to the Post Street restaurant
during 1989 and that Toraya is entitled to include the $19,917 as
"Purchases Expense" for 1989.
Respondent contends that Toraya's writeoff of the Berkeley
restaurant's inventory was improper. Respondent asserts that
petitioners gave contradictory explanations as to what happened
to the Berkeley restaurant's inventory when the restaurant
closed--claiming both that it was abandoned and that it was
transferred to the Post Street restaurant. Respondent maintains
that, if the inventory was not abandoned, the Post Street
restaurant's inventory should have been adjusted to show the
addition of the Berkeley restaurant inventory. Petitioners
counter that the Berkeley restaurant's inventory already was
included in Toraya's opening inventory in its general ledger and,
therefore, the Post Street restaurant's inventory did not need to
be adjusted when the Berkeley restaurant was closed in 1989.
Gross income of a taxpayer who uses inventory is calculated
by subtracting cost of goods sold from gross receipts. Molsen v.
Commissioner, 85 T.C. 485, 498 (1985); sec. 1.61-3(a), Income Tax
Regs. Cost of goods sold generally is calculated by subtracting
inventory on hand at the end of the year from the sum of
inventory on hand at the beginning of the year and the cost of
any purchases made during the year. Molsen v. Commissioner,
supra; see also sec. 1.162-1(a), Income Tax Regs.
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