Week 7.docx

# Items 8100 3800 6000 17900 cost 8100 3800 600 18450

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Items - \$8,100 + 3,800 + 6,000 = \$17,900 Cost - \$8,100 + 3,800 + 6,00 = 18,450 Market - \$7,900 + 3,800 + 6,000 = \$17,700 Under the lower of cost or market method, the taxpayer’s inventory is valued at \$17,700 instead of \$17,900. 6. The Cardinal Wholesale Company is an S corporation that began business on March 1, 2015. Robert, a calendar year taxpayer, owns 100% of the Cardinal stock. He has \$400,000 taxable income from other sources each year. Robert will work approximately 30 hours a week for the corporation. Cardinal sells swimming pool supplies, and its natural business year ends in September. Approximately 80% of Cardinal’s gross receipts occur in June through September. a. What tax year should Cardinal elect, assuming that Robert anticipates the company will produce a net profit for all years? b. What tax year should Cardinal elect, assuming that it will lose \$10,000 a month for the first 12 months and an average of \$5,000 a month for the next 12 months? In the third year, the corporation will earn taxable income. Answer for a is, under the general rules for tax years, partnerships and S corporations will often be required to use a calendar year unless they can establish a valid reason a business purpose for a fiscal year. The answer for b is, if Robert is able to give a valid reason to use the fiscal year instead he would be able to show a loss for the first two years. However, if he chooses the calendar year he would

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5 Week 7 Assignment be able to show a loss for all three years offsetting the taxable income for the third year. The best option for Robert would be to utilize the calendar year.
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• Spring '15
• Basa
• Fiscal Year, Corporation, Taxation in the United States, Generally Accepted Accounting Principles, Calendar year

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