Ettenson Winnig Dry Goods Co. v. Commissioner ( 1926 )

OPINION.

Arttndell:

We have set out in our findings of fact the method resorted to by the Commissioner in computing what he alleges was the net income of the Excelsior Springs Mineral Water & Bottling Co. for the calendar year 1918. The Commissioner’s computation of net income, baséd solely upon the closing journal entries, is erroneous, since it fails to take into account 19 expense accounts totaling $15,484.93 and 5 income accounts totaling $5,444.73, which accounts were transferred to profit and loss without formal journal entry. Also, we have pointed out in our findings of fact that the journal entry transferring “ Complimentary advertising No. 2 ” to profit and loss is in error to the extent of $5.

It will be noted from the findings of fact that the Commissioner has allowed as donations amounts totaling $222. This was error, as donations are not deductible by corporations.

For the purpose of proving the accuracy of the ledger accounts and their dependability as a basis for computing net income for income and profits-tax purposes, the taxpayer presented in evidence the general ledger and journal of the Excelsior Springs Mineral Water & Bottling Co. for the entire calendar year 1918, and that company’s vouchers for the first eight months of the year. The vouchers for the last four months of the year have been misplaced or destroyed. The Board has made a careful examination of these records for the first eight months of 1918 and has satisfied itself that the general ledger accounts for that period of time are correct. Under such circumstances, we accept the gen-, e^al ledger accounts for the entire year 1918 as correct and as a proper basis for the determination of the results of the operations of the Excelsior Springs Mineral Water & Bottling Co.

We have found that, for the calendar year 1918, the Excelsior Springs Mineral Water & Bottling Co. sustained a net loss of $553.17, and this we have computed in the following manner:

Net profit as found by the Commissioner- $9,270.03

Add:

Income accounts not considered by Commissioner:

Rentals_ $128. 00

Receipts from operation of pavilion No. 1_ 3,857. 54

Receipts from operation of pavilion No. 2- 1, 085.17

Sales of bottles_ 374. 02

- 5,444.73

Total_ 14, 714. 76

Deduct: Expenses not considered by Commissioner:

Packing material_ 205. 30

Carbonating gas_ 429.47

Bottle supplies_1, 318.11

Superintendent’s salary_ 1, 200. 00

Fuel, light, water, power_i- 331. 32

Wages in plant__ 2, 704. 88

Repairs to machinery_ 245.98

Repairs to buildings- 51. 95

Repairs to grounds_ 36. 53

Sulpho-saline well wages- 588. 75

Sulpho-saline pavilions_ 482. 56

Opening expenses new pavilion_ 380. 03

Operating expenses new pavilion_■- 314. 91

Operating expenses pavilions 1 and 2_ 2, 809.47

Soda-water cases and bottles_ 26. 67

Empty cases supply account- 688.17

Ginger ale and soda water supplies_ 959. 35

Bottle supply account_'- 2, 482. 79

Insurance_:_ 228. 69

15, 484. 93

Difference_•_ 770.17

Add: Error in journal entry transferring “ Complimentary advertising No. 2 ” to profit and loss_ 5. 00

Actual loss sustained for year___ 775.17

Deduct: Donations allowed as deductions by Commissioner_ 222. 00

Loss for income-tax purposes_,_ 553.17

We conclude that the consolidated net income for the fiscal year ended January 31, 1919, should be computed, with due consideration to the loss of $553.17 sustained by the Excelsior Springs Mineral Water & Bottling Co. for the calendar year 1918.