COGS & Inventory

[JCH]

I'm hoping that some of the experts out there can help, because I'm pulling my hair out. Bob, Sandy, Old Jack, Snags, or anyone else, please help. I've done a lot of simple partnerships, but I'm into my first retail establishment now.

My client has 242,000 for COGS, and an ending inventory of (62,847). They also purchased 225,000 of inventory which is on the balance sheet prepared by client as "organization cost", which is obviously wrong.

My return was in balance until I prepared Schedule A, COGS, now I have an M-2 adjustment equal to the ending inventory of (62,847).

So what am I doing wrong? I want to move the 225,000 of inventory which came with the business into inventory, but that won't cure my M-2 problem. I guess I've never had to worry about how inventory on Schedule A relates to the balance sheet.

If you've read this far, thanks. I appreciate any input from the experienced preparers out there.

[veritas]

When the books are this messed up

I would have them go back and fix the books before doing the tax return.

[ChEAr$]

adjustments

If client came up with 242,000 for COGS, then that already includes the effects of
beginning and ending inventory.
Your job is to find out what beginning inventory was, how much purchaes were, and
then since you know ending inventory, the results shoudl BE that 242,000.

Investigate.

[OldJack]

ChEAr$ has the right idea. You are missing the beginning inventory and therefore purchases is probably incorrect. If you agree that the $242,000 is correct and that $62,847 is the correct ending inventory, then beginning inventory was $225,000 so purchases would be $79,847 with $304,847as total merchandise available before sale.

$225,000 Beginning Inventory
....79,847 Purchases
-------------
$304,847 available
....62,847 Ending Inventory
-------------
$242,000 COGS

Don't forget that the $62,847 goes on page 4, as an asset on the ending inventory line.

[S T]

Was this a business purchase in 2006

I agree with previous posts. But something in you post makes me think the t/p purchased this business in 2006 and as part of the purchase $225,000 was inventory which was
mis-stated on the balance sheet.

Then you also have the inventory figure of 62,847 in brackets (as a negative) so don't know whether inventory at 12/31 is a negative amount or you were just highlighting that amount.

Can you clarify? Or am I just over thinking this like I do most issues.

Sandy

[JCH]

Thanks

Thank you to all for your detailed responses. You kicked my brain into gear, and based on your responses it suddenly made sense how to reconcile the COGS with the inventory. My return is in balance, and the numbers tie to the financials. Now I just have to figure out what to charge for this initial year partnership.