Jerry L. Crabtree - Page 5

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             usually featured live bands on Friday and Saturday nights.               
             The bar sold prepackaged snacks and had a pay telephone.                 
                  Ms. Crabtree handled all of the bookkeeping for the                 
             package store and the bar during the years in issue.  For                
             Federal income tax purposes, Crabtree Investments reported               
             income using the calendar year and a hybrid method of                    
             accounting, the cash receipts and disbursements method for               
             sales, and the accrual method for purchases.                             
                  Petitioners’ accountant, Mr. Richard Morton, prepared               
             a general ledger and other financial records for Crabtree                
             Investments for each of the years in issue.  The general                 
             ledger for each year itemizes on a monthly basis the checks              
             written on a checking account at First Union Bank main-                  
             tained on behalf of Crabtree Investments.  Mr. Morton                    
             prepared the general ledgers from the records that the                   
             individual petitioners provided to him every month.  These               
             records included Crabtree Investments’ check stubs, bank                 
             statements, daily reports, and other records.  On the basis              
             of that information, Mr. Morton reconciled the bank account              
             and prepared a sales journal, sales tax returns, payroll                 
             reports, and payroll tax deposits.  Mr. Morton also                      
             prepared the corporation’s income tax returns from the                   
             above information.  Mr. Morton did the audit of the records              
             of Crabtree Investments.                                                 

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Last modified: May 25, 2011