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The adjusting journal entries for the Kansas operation for
2000 include the following entry (adjusting journal entry 18):
Date Acct. No.# Debit Credit
12/31/00 Inventory 10500 $48,257.92
Product purchases 50000 $48,257.92
Ms. Wilkerson made this entry to adjust the Kansas inventory
account in accordance with the actual physical count of ending
inventory. The $48,257.92 is the difference between the trial
balance inventory of $171,448.06 and the physical count of
inventory of $123,190.14 and reflects the reduction of inventory
caused by the shrinkage, or spoilage, of SET’s products.
On the Schedule C attached to SET’s amended Form 1041, U.S.
Income Tax Return for Estates and Trusts, for the 2000 tax year,
petitioners reported the following amounts related to cost of
goods sold for the Kansas and Texas operations:
Beginning inventory (line 35) $221,908
Purchases (line 36) 414,832
Ending inventory (line 41) 207,516
Cost of goods sold (line 42) 429,224
The ending inventory amount of $207,516 reported on line 41 of
the Schedule C includes a reduction of inventory of $48,257.92
caused by shrinkage to the Kansas inventory and accounted for by
adjusting journal entry 18. The product purchases of $414,832
reported on line 36 of the Schedule C includes an increase to
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Last modified: May 25, 2011