Ward AG Products, Inc. - Page 8

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          also used the accrual method of accounting for financial                    
               Robert Grady (Grady), petitioner's certified public                    
          accountant, reconciled petitioner's accounts at the end of each             
          year.  He also prepared petitioner's general ledgers, balance               
          sheets, and adjusting transactions.  Grady used the accrual                 
          method of accounting to prepare financial statements which                  
          petitioner used to track its financial position for each farmer             
          and growing season.                                                         
               2.   Tax Returns                                                       
               Petitioner used a taxable year ending on October 31 for the            
          years at issue.                                                             
               Grady prepared petitioner's income tax returns.  Petitioner            
          used the cash method of accounting on its Federal income tax                
          returns before and during the years in issue.  Petitioner                   
          reported opening and closing inventories to calculate costs of              
          goods sold on its tax returns and reported that it had accounts             
          receivable and accounts payable.  Petitioner reported that it had           
          gross income of more than $3 million per year for the years in              
          issue.  Petitioner reported that all of its income was from                 
          selling farm supplies and equipment, except it reported that it             
          received less than $140,000 per year in interest income and less            
          than $300 per year in commissions.  Petitioner did not report               
          that it received any income from selling crops or farming.                  

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Last modified: May 25, 2011