Question

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 million 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.

Answer 1

b. The income from the farm may be reported by the cash method

Step-by-step explanation:

Under the cash method, you generally report income in the tax year you receive it, and deduct expenses in the tax year in which you pay the expenses. By using the cash method, a business proprietor can record income as soon as it comes in for tax purposes. If a sale is made, the cash is immediately available to report to make estimated tax payments.