Case Studies 491 A Scheme To Save Income Tax? Vince Lyons owns a large and profitable sporting goods business in Comer Brook, Newfoundland. He has recently had a nun of bad luck on the stock market, which has left him very short of funds. Unfortunately, he is badly in need of money to pay his income tax, which is almost doe. Vince desperately needs a way to reduce the amount of income tax that he will have to pay. After much searching, he comes up with a scheme that he thinks may work. He describes this scheme to his wife, Monisa, to get her reaction Vince explains to Monisa that his income tax is based primarily on the net income of the business. He shows her condensed figures (that is, only those figures needed for understanding the problem) for the current year and the projected fig- ures for next year. These are shown below. The Actual Figures This year's actual figures $250 000 Next year's projected figures $300 000 Sales Cost of Goods Sold: Beginning inventory Purchases Goods available for sale Less ending inventory Cost of Goods Sold Gross Profit $ 50 000 147 500 $197 500 60 000 $137 500 $112 500 $ 60 000 170 000 $230 000 65 000 $165 000 $135 000 75 000 $ 60 000 Expenses Net Income 65 000 $ 47 500 Vince's Proposed Altered Figures This year's actual figures (modified) $250 000 Next year's projected figures (modified) $300 000 Sales Cost of Goods Sold: Beginning inventory Purchases Goods available for sale Less ending inventory Cost of Goods Sold Gross Profit Expenses Net Income $ 50 000 147 500 $197 500 40 000 $157 500 $ 92 500 65 000 $ 27500 $ 40 000 170 000 $210 000 65 000 $145 000 $155 000 75 000 $ 80 000 Case Studies 491 A Scheme To Save Income Tax? Vince Lyons owns a large and profitable sporting goods business in Comer Brook, Newfoundland. He has recently had a nun of bad luck on the stock market, which has left him very short of funds. Unfortunately, he is badly in need of money to pay his income tax, which is almost doe. Vince desperately needs a way to reduce the amount of income tax that he will have to pay. After much searching, he comes up with a scheme that he thinks may work. He describes this scheme to his wife, Monisa, to get her reaction Vince explains to Monisa that his income tax is based primarily on the net income of the business. He shows her condensed figures (that is, only those figures needed for understanding the problem) for the current year and the projected fig- ures for next year. These are shown below. The Actual Figures This year's actual figures $250 000 Next year's projected figures $300 000 Sales Cost of Goods Sold: Beginning inventory Purchases Goods available for sale Less ending inventory Cost of Goods Sold Gross Profit $ 50 000 147 500 $197 500 60 000 $137 500 $112 500 $ 60 000 170 000 $230 000 65 000 $165 000 $135 000 75 000 $ 60 000 Expenses Net Income 65 000 $ 47 500 Vince's Proposed Altered Figures This year's actual figures (modified) $250 000 Next year's projected figures (modified) $300 000 Sales Cost of Goods Sold: Beginning inventory Purchases Goods available for sale Less ending inventory Cost of Goods Sold Gross Profit Expenses Net Income $ 50 000 147 500 $197 500 40 000 $157 500 $ 92 500 65 000 $ 27500 $ 40 000 170 000 $210 000 65 000 $145 000 $155 000 75 000 $ 80 000