Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board

Report as a Loan or an Assignment…
(How it Should Be Reported)
I. Accounts Receivable $4,000
Cash (down payment) $1,000
Sale $5,000
To record the sale of the vehicle
II. Cost of Goods Sold $2,500
Inventory $2,500
To record the cost of the vehicle sold
III. Cash $2,000
Advance Payable to Finance Company $2,000
To record advance received from the
finance company
IV. Advance Payable to Finance Company $183
(250 - (17 + 50) )
Interest Expense (Dealer to Fin. Co.) $17
(2000 x (10% / 12) )
Collection Fee Expense $50
(250 x 20%)
Notes Receivable (250 - 33) $217
Interest Income (Dealer held note) $33
(4000 x (10% / 12) )
To record collection of first $250 payment
Reported correctly, the dealership must include ordinary interest in its taxable income
rather than applying all the payments as an offset to notes receivable.
19-24