Concept explainers
Your client, Dave’s Sport Shop, sells sports equipment and clothing in three retail outlets in New York City. During 2019, the CFO decided that keeping track of inventory using a combination of QuickBooks and spreadsheets was not an efficient way to manage the stores’ inventories. So Dave’s purchased an inventory management system for $9,000 that allowed the entity to keep track of inventory, as well as automate ordering and purchasing, without replacing QuickBooks for its accounting function.
The CFO would like to know whether the cost of the inventory management program can be expensed in the year of purchase. Write a letter to the CFO, Cassandra Martin, that addresses the tax treatment of purchased software. Cassandra’s mailing address is 867 Broadway, New York, NY 10003.
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Chapter 8 Solutions
Individual Income Taxes
- Block Foods, a retail grocery store, has agreed to purchase all of its merchandise from Square Wholesalers. In return. Block receives a special discount on purchases. Over recent months, Square noticed that purchases by Block had been falling off. At first, Square simply thought that business might be down for Block and was hopeful that their purchases would pick up. When business with Block did not return to a normal level, Square requested financial statements from Block. Squares records indicate that Block purchased 300,000 worth of merchandise during 20-1, the most recent year. Selected information taken from Block's financial statements is as follows: REQUIRED Compute net purchases made by Block during 20-1. Does it appear that Block violated the agreement?arrow_forwardUmatilla Bank and Trust is considering giving Sheffield Corp. a loan. Before doing so, it decides that further discussions with Sheffield’s accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $273,850. Discussions with the accountant reveal the following. 1. Sheffield shipped goods costing $53,860 to Hemlock Company FOB shipping point on December 28. The goods are not expected to reach Hemlock until January 12. The goods were not included in the physical inventory because they were not in the warehouse. 2. The physical count of the inventory did not include goods costing $88,840 that were shipped to Sheffield FOB destination on December 27 and were still in transit at year-end. 3. Sheffield received goods costing $26,690 on January 2. The goods were shipped FOB shipping point on December 26 by Yanice Co. The goods were not included in the physical count. 4. Sheffield shipped goods costing $52,540 to…arrow_forwardFirst Bank is considering giving Cullumber Company a loan. First, however, it decides that it would be a good idea to have further discussions with Cullumber’s accountant. One area of particular concern is the inventory account, which has a December 31 balance of $280,000. Discussions with the accountant reveal the following: 1. The physical count of the inventory did not include goods that cost $91,000 that were shipped to Cullumber, FOB shipping point, on December 27 and were still in transit at year end. 2. Cullumber sold goods that cost $37,000 to Oriole, FOB destination, on December 28. The goods are not expected to arrive at their destination in India until January 12. The goods were not included in the physical inventory because they were not in the warehouse. 3. On December 31, Indigo had $32,000 of goods held on consignment for Cullumber. The goods were not included in Cullumber’s ending inventory balance. 4. Cullumber received goods that cost $28,500 on…arrow_forward
- Suppose you work for a company that sells computers and that you have been asked to oversee doing a physical count and valuation of the inventory at year end. You determine the value of inventory on hand to be $23,500 yet according to the Inventory account in the ledger the balance should be $35,000. give two reasons that could explain why the balances are not the same and what journal entry would need to be recorded in the books?arrow_forwardUmatilla Bank and Trust is considering giving Sarasota Corp. a loan. Before doing so, it decides that further discussions with Sarasota’s accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $284,470. Discussions with the accountant reveal the following. 1. Sarasota shipped goods costing $50,150 to Hemlock Company FOB shipping point on December 28. The goods are not expected to reach Hemlock until January 12. The goods were not included in the physical inventory because they were not in the warehouse. 2. The physical count of the inventory did not include goods costing $88,600 that were shipped to Sarasota FOB destination on December 27 and were still in transit at year-end. 3. Sarasota received goods costing $24,100 on January 2. The goods were shipped FOB shipping point on December 26 by Yanice Co. The goods were not included in the physical count. 4. Sarasota shipped goods costing $49,800 to Ehler of…arrow_forwardFirst Bank is considering giving Sunland Company a loan. First, however, it decides that it would be a good idea to have further discussions with Sunland’s accountant. One area of particular concern is the inventory account, which has a December 31 balance of $278,000. Discussions with the accountant reveal the following: 1. The physical count of the inventory did not include goods that cost $95,000 that were shipped to Sunland, FOB shipping point, on December 27 and were still in transit at year end. 2. Sunland sold goods that cost $34,000 to Blossom, FOB destination, on December 28. The goods are not expected to arrive at their destination in India until January 12. The goods were not included in the physical inventory because they were not in the warehouse. 3. On December 31, Bridgeport had $32,000 of goods held on consignment for Sunland. The goods were not included in Sunland’s ending inventory balance. 4. Sunland received goods that cost $28,000 on January 2.…arrow_forward
- Assume you're the assistant controller at a bookstore that's run by an independent bookseller. Manual, periodic inventory updating, physical counts at year end, and the FIFO technique for inventory costs are all used by the firm. How would you tackle the question of whether or not the organization should move to computerized perpetual inventory updating? Can you make a compelling case for the advantages of perpetual? Explain.arrow_forwardMargie Johnson is a staff accountant at ToolEx Company, a manufacturer of tools and equipment. The company is under pressure from investors to increase earnings, and the president of the company expects the accounting department to "make this happen." Margie's boss, who has been a mentor to her, is concerned that if earnings do not increase, he will be terminated. Shortly after the end of the fiscal year, the company performs a physical count of the inventory. When Margie compares the physical count to the balance in the inventory account, she finds a significant amount of inventory shrinkage. The amount is so large that it will result in a significant drop in earnings this period. Margie's boss asks her not to make an adjusting entry for shrinkage this period. He assures her that he will get "caught up" on shrinkage in the next period, after the pressure is off to reach this period's earning goal. Margies boss asks her to do this as a personal favor for him. What should Margie…arrow_forwardTri-State Bank and Trust is considering giving Concord Company a loan. Before doing so, management decides that further discussions with Concord’s accountant may be desirable. One area of particular concern is the inventory account, which has a year-end balance of $345,000. Discussions with the accountant reveal the following. 1. Concord sold goods costing $32,000 to Lilja Company, FOB shipping point, on December 28. The goods are not expected to arrive at Lilja until January 12. The goods were not included in the physical inventory because they were not in the warehouse. 2. The physical count of the inventory did not include goods costing $95,000 that were shipped to Concord FOB destination on December 27 and were still in transit at year-end. 3. Concord received goods costing $23,000 on January 2. The goods were shipped FOB shipping point on December 26 by Brent Co. The goods were not included in the physical count. 4. Concord sold goods costing $34,000 to Jesse…arrow_forward
- Dryden Company is an auto parts supplier. At the end of each month, the employee who maintains all of the inventory records takes a physical inventory of the firm’s stock. When discrepancies occur between the recorded inventory and the physical count, the employee changes the physical count to agree with the records.Required:1. What problems could arise as a result of Dryden Company’s inventory procedures?2. How could the internal control system be strengthened to eliminate the potential problems?arrow_forwardAbercrombie and Fitch is a leading retailer of casual apparel for men, women, and children. Assume that you are employed as a stock analyst and your boss has just completed a review of the new Abercrombie annual report. She provided you with her notes, but they are missing some information that you need. Her notes show that the ending inventory for Abercrombie in the current and previous years was $424,393,000 and $399,795,000, respectively. Net sales for the current year were $3,492,690,000. Cost of goods sold was $1,408,848,000. Income before taxes was $55,161,000. Required: Determine the amount of purchases for the year. (Hint: Use the cost of goods sold equation or the inventory T-account to solve for the needed value.)arrow_forwardTri-State Bank and Trust is considering giving Concord Company a loan. Before doing so, management decides that further discussions with Concord’s accountant may be desirable. One area of particular concern is the inventory account, which has a year-end balance of $345,000. Discussions with the accountant reveal the following. 1. Concord shipped goods costing $32,000 to Lilja Company, FOB shipping point, on December 28. The goods are not expected to arrive at Lilja until January 12. The goods were not included in the physical inventory because they were not in the warehouse. 2. The physical count of the inventory did not include goods costing $95,000 that were shipped to Concord FOB destination on December 27 and were still in transit at year-end. 3. Concord received goods costing $23,000 on January 2. The goods were shipped FOB shipping point on December 26 by Brent Co. The goods were not included in the physical count. 4. Concord shipped goods costing $34,000 to…arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENTCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,