Exercise 16-27 (LO. 2)

Gaffney Corporation is a wholesale distributor of auto parts and uses the cash method of accounting. The company's sales have been about $20,000,000 per year for the last few years. However, Gaffney has the opportunity to acquire an unincorporated competitor with annual sales of $10,000,000.

Complete the following paragraph regarding the accounting implications of acquiring the competitor. For the year of acquisition, Gaffney and the acquired business will be treated as a single business. Gaffney must consider the combined gross receipts of both businesses in determining if the average annual gross receipts for the prior three-year period exceed the $.......?........ statutory threshold. Therefore, Gaffney will likely be required to change to the accrual method for the year of the acquisition.