Question

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You are currently working at a mid-sized certified public accounting firm. Your client is Bob Jones. Bob, age 60 and single, has recently retired from IBM. He has $690,000 available in his 401(k) fund and he is thinking of using that money to open a used car business that will be located at 210 Ocean View Drive in Pensacola, Florida. Bob has estimated that the business might make $300,000 in taxable income. Bob’s personal wealth including investments in land, stocks, and bonds is about $14,000,000. He reported an interest income of $20,000 and dividend income of $6,000 last year. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for $450,000. Bob has hired your firm for professional advice regarding whether he should operate as a sole proprietor, a partnership, an S corporation, or a C corporation. He is also considering transferring a possible 40% interest in his new business to his daughter Mandy, age 23 and single.

Required

Summarize, using moral reasoning, cash or accrual basis accounting systems in relation to the selected business entity. Consider how the accounting system impacts revenue recognition, consistent with Internal Revenue Code and Treasury regulations.

Answer 1

Despite the fact that, the IRS Code licenses S Corporations to record their government form utilizing either money premise of bookkeeping or accumulation technique for bookkeeping, Bob will be just allowed to utilize the collection strategy for representing documenting his pay assessment forms since he will oversee stock in his new trade-in vehicle business.

For that equivalent reason, we suggest that the bookkeeping and expense document be finished utilizing the gathering technique for bookkeeping.

Weave's business will oversee stock and complex exchanges because of the idea of the trade-in vehicle deals.

In the event that Bob winds up utilizing money premise of representing his business and documents his salary assessment form utilizing the gathering strategy, so as to conform to the IRS Code, he would need to change over his money premise bookkeeping into the collection technique by aggregating every one of the solicitations due and all the evaluated costs comparing to the year to be recorded.

Also,Bob should enroll all the pay related to the deals finished even though,the money might not have been gotten yet. Then again, if Bob utilizes the accumulation technique for representing his everyday business and for this salary impose return,adjustments to the budget report won't be vital so as to agree to the IRS Code.