Which of the Following C Corporations Will Be Allowed to Use

question 5

Essay

Which of the following C corporations will be allowed to use the cash method of accounting for 2008? Explain your answers.
a.Cardinal Corporation, which had net profits as follows: $3 million in 2005, $6 million in 2006, and $4 million in 2007.
b.Redbird Corporation, which had gross receipts as follows: $2 million in 2005, $6 million in 2006, and $9 million in 2007.

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Definitions:

Accounts Receivable Balances

The total amount of money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.

Cash Flow Statement

A cash flow statement is a financial document that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given period.

Non-cash Expenses

Expenses recorded on a company's income statement that do not involve an actual cash outlay, such as depreciation or amortization.

Sales Returns and Allowances

Deductions from gross sales that reflect products returned by customers and discounts provided for minor defects.