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

Reported as a Sale…
(How it Should Be Reported)
CASH FLOW ANALYSIS
Tax on Profit (Sale of Car)
($2,500 x 30%) $750
Tax on Loss (Sale of Contract)
($1,400 x 30%) ($420)
I. Note 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
Back-end Distributions Receivable $450
Section 483 Interest Receivable $150
Loss on Sale of Installment Contract $1,400
Note Receivable $4,000
To record the sale of the finance contract
IV. Cash $600
Back-end Distributions Receivable $450
Section 483 Interest Receivable $150
To record back-end distribution and
interest payments
Reported properly, the correct loss is $1,400, not $2,000.
19-26