Items 8100 3800 6000 17900 cost 8100 3800 600 18450

Info icon This preview shows pages 4–6. Sign up to view the full content.

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
Image of page 4

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

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.
Image of page 5
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.
  • Spring '15
  • Basa
  • Fiscal Year, Corporation, Taxation in the United States, Generally Accepted Accounting Principles, Calendar year

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern