The following information came from an IRS audit of a sole proprietor named John Doe. Using the “Cash T” approach, compute the probable over/understatement of income as computed by the IRS agent.
The following information came from an IRS audit of a sole proprietor named John Doe.
Using the “Cash T” approach, compute the probable over/understatement of income as computed by the IRS agent.
Schedule C gross receipts ........................$112,610
Cost of goods sold ...................................... 65,414
Schedule C total cash expenses ................. 30,023
Rental income .........................................…. 5,318
Rental expenses (all cash) .....................….. 6,330
Beginning bank account balance ................. 7,873
Ending bank account balance ..................... 17,265
Insurance proceeds received (taxable) ……. 4,300
Principal payments on rental property loan… 2,894
Personal living expenses ............................. 26,550
Personal auto expenses ................................ 9,788
Social security benefits received …………….. 6,500
Gifts of cash received from relatives ………… 2,000
IRA (retirement account) contributions ……… 5,000
Show your complete computations in the Final Cash-T format as shown in Table 6.2 in your textbook. Clearly indicate the amount of your potential over/understatement income.
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