Accounting Case Studies

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Question 1: The situation in this case study revolves around Sally, a member of the Board of Sally Susie's Donut Shop, Inc. (SSDS). SSDS uses an accrual method of accounting and over the past three years has seen volatile sales. Sally is unhappy with her previous tax advisor and wants new advice. Our task is to outline a preliminary interview with Sally to ensure that we ask the right questions. For tax purposes, it is important to forecast cash flow and income. Sally, in Y1 you posted taxable income of $250k, in Y2 $10k, and in Y3 $150K. Were these numbers based on actual gross sales, or did your deductions and depreciation change drastically between Y1 and Y2? Was the $50k contribution to a 501(c) charity actually donated, or promised? Was this done with the approval of the Board of Directors? Based on income, was there a particular reason for donating what was about 20% of the annual taxable income? To reduce tax, personal reasons, particular charity? (Notes: If SSD did make over this money, they would have to show all relevant canceled checks, acknowledgment letters from the charity, and appraisals for donated property. The Pension Protection Act specifies that the organization keeps written records of all cash donations. This must indicate the name of the charitable organization, the date of contribution, and the amount of contribution (Internal Revenue Service, 2006). Was the $50k donated in a lump sum, and when? If the donation was made in increments, there

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