I-02.05 Moncrief Corporation is a small business operating in a state where a tax on income is contrary to the state's constitution. In an effort to raise revenue, the state has imposed a tax on business receipts for services provided to customers (total revenues, whether collected during the period or not). The tax is equal to 1% of revenues in excess of $300,000. Moncrief prepared its state tax return by adding up the total deposits to the company's bank account during the year. Total deposits were $1,240,000, and the company paid taxes of $9,400 (($1,240,000 - $300,000) X 1%). Assume you are an auditor for the state, and Moncrief has been randomly selected for a routine review. You immediately find that the company does not maintain a typical journal/ledger system, and is fundamentally clueless about proper accounting procedures. You have discovered the following limited information as part of your examination: Fact 1 Total deposits included $150,000 that resulted from issuing shares to stockholders.
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