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 $23 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.

Question

Quizplus · Accepted Answer

If the farm's gross receipts have never exceeded $25 million, the income from the farm may be reported by the cash method, regardless of whether inventories are material to the business or not. Therefore, option B is correct and options A, C, D, and E are incorrect.

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