Andrew owns 100% of the stock of Crow's Farm Inc. ,an S corporation,that raises cattle and corn.The farm's annual gross receipts have never exceeded $3,000,000 and the farm is not considered a tax shelter.
A)The farm must report its sales and cost of goods sold by the accrual method because inventories are material to the business.
B)The income from the farm may be reported by the cash method.
C)The income from the sales of cattle may be reported by the cash method,but the income from the sales of corn must be reported by the accrual method.
D)The income from the sales of corn may be reported by the cash method,but the income from cattle sales must be reported by the accrual method.
E)None of the above.

Question

Quizplus · Accepted Answer

The S corporation may report its income by the cash method because its annual gross receipts do not exceed $25 million and the farm is not considered a tax shelter. The choice A is incorrect because accrual accounting is required for any business that has material inventories. The choices C and D are incorrect because a business must use the same method of accounting for all of its sales unless a separate and distinct line of business is involved.

Andrew Owns 100% of the Stock of Crow's Farm Inc