Question

Problem 16-35 (b) (LO. 3) Tolbert Company is a audio-visual consulting firm. The company also sells audio-visual equipment to its clients. The sales of equipment account for approximately 30% of the company's gross receipts. The company has consistently used the cash method to report its income from services and the accrual method to report its income from the sale of inventory. In July of the current year, Tolbert's accountant discovered that as a small business, the company qualifies to use the cash method for all of its activities. The company is a calendar year taxpayer. As of the beginning of the current year, the company had $189,000 of inventory on hand and $42,000 of accounts receivable from the sales of equipment and $16,000 of receivables from the consulting services. The account payable (all associated with operation expenses) were $9,800 at the beginning of the year. a. Compute the total net adjustment due to the change in accounting method. $ b. Is the net adjustment positive or negative? because asset accounts are being and thus taxable The adjustment is income. c. When can the adjustment be taken into account in computing taxable income?