- 4 -
purposes. Specifically, Diehl used the: (1) Cash receipts and
disbursements method (cash method) to report its receipts and
certain expenditures and (2) lower of cost or market method to
value its yearend inventory. At the beginning and end of its
1995 taxable year, Diehl had an inventory valued for Federal
income tax purposes at $112,945 and $132,820, respectively.
Diehl’s inventory consisted of: (1) Blank disks, (2) software,
manuals, binders, and videos, and (3) shipping materials and
other supplies. The values of those items on May 31, 1994 and
1995, were as follows:
May 31, 1994 May 31,
1995
Blank disks $11,530 $16,156
Software, manuals, binders, and videos 85,904 106,353
Shipping materials and other supplies 15,513 10,311
Total 1112,947 132,820
1 The $2 difference between this amount and the $122,945 listed
immediately above and below is attributable to rounding.
Diehl reported taxable income of $1,603,678 for its 1995
taxable year. It computed and reported its cost of goods sold as
follows:
Inventory at beginning of year $112,945
Purchases 510,898
Cost of labor 32,260
Commissions 4,961
Inventory scrap 17,680
Total 678,744
Inventory at end of year 132,820
Cost of goods sold 545,924
Respondent determined that Diehl was required to use an
overall accrual method to reflect its income clearly. Respondent
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011