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

question 12

Multiple Choice

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 $3 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.

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Definitions:

Equity for Common Stockholders

The portion of a company’s equity capital that is attributable to holders of common stock, representing their ownership interest.

Return on Total Assets

A financial ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets, indicating how efficiently a company uses its assets to generate earnings.

Net Income Before Interest and Taxes

Earnings of a company before interest and tax expenses are deducted; also known as operating profit.

Accounts Receivable Turnover

A financial metric that measures how many times a company collects its average accounts receivable in a period, indicating the efficiency of extending credit and collecting debts.