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also used the accrual method of accounting for financial
statements.
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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