Accounting Periods & Methods for Moss CompanyMoss Company is a computer consulting firm. The company also
sells equipment to its clients. The sales of equipment account for
approximately 40% 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 June of the current year
Moss’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 $60,000 of
inventory on hand and $50,000 of accounts receivable from the sales of
equipment and $40,000 of receivables from the consulting services.a. Compute the adjustment due to the change in accounting
methodb. Is the adjustment positive or negative? Explain
c. When can the adjustment be taken into account in
computing taxable income?
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