Rex loves to work with his hands and is very good at making small figurines. Three years ago, Rex opened Bronze Age Miniatures (BAM) for business as a sole proprietorship. BAM produces miniature characters ranging from sci-fi characters (his favorite) to historical characters like George Washington (the most popular). Business has been going very well for him, and he has provided the following information relating to his business. Calculate the business taxable income for BAM assuming that BAM elects to account for its inventory of miniatures.

Rex received approval from the IRS to switch from the cash method of accounting to the accrual method of accounting effective January 1 of this year.

At the end of last year, BAM reported accounts receivable that had not been included in income under the accrual method of $14,000 and accounts payable that had not been deducted under the accrual method of $5,000.

a)

b) In March, BAM sold 5,000 miniature historical figures to History R Us Inc. (HRU), a retailer of historical artifacts and figurines, for $75,000.

HRU was so impressed with the figurines that it purchased in March that it wanted to contract with BAM to continue to produce the figurines for them for the next three years. HRU paid BAM $216,000 ($12 per figurine) on October 30 of this year to produce 500 figurines per month for 36 months beginning on November 1 of this year. BAM delivered 500 figurines on November 30 and again on December