*2711 INVENTORY. - Value of opening inventory determined for purpose of computing gain derived from goods sold.
*1208 Respondent has determined a deficiency in the amount of $4,511.20 in petitioner's income and profits tax for the period from July 1 to December 31, 1920.
The respondent reduced petitioner's opening inventory of July 1, 1920, by $15,220.83, as the amount of a write-up over and above the value of goods paid in to petitioner, which assigns said action as error.
FINDINGS OF FACT.
Petitioner is a Wisconsin corporation with its principal office at Milwaukee.
For a number of years prior to July 1, 1920, Henry C. Amazeen conducted his individual business of manufacturing shoes under the trade name of Amazeen & Co. Henry C. Amazeen owned all the property used in the business including real estate, factory building, machinery, equipment and findings. For many years the factory superintendent, S. J. Schaefer, took inventory on the basis of the cost of leather, findings, etc., and partly finished shoes and market value of finished*2712 shoes on hand.
On or about July 1, 1920, the petitioner was organized for the purpose of taking over all the assets of and conducting the said shoe manufacturing business. The petitioner had an authorized capital *1209 stock of $85,000 par value, all of which was issued to Amazeen for the assets of his business. Shortly after the organization of petitioner, Amazeen sold a portion of his stock to certain employees.
On July 1, 1920, Schaefer made an inventory in the same manner in which he had done theretofore and turned all his schedules and figures over to Katherine Wegner, the bookkeeper, who, as she had done theretofore, computed the total amount of the inventory which was $22,295.45. That figure was used as the closing inventory for Amazeen's individual business.
Petitioner's books were opened on July 1, 1920, with the following entry:
| Debit | Credit | ||
| To building and machinery | $29,000.00 | By capital | $85,000 |
| To merchandise | 37,516.28 | ||
| To bonds | 21,000.00 | ||
| To cash | 6,483.72 | ||
| Total | 85,000.00 | 85,000 |
It was found that the total assets were $15,220.83 less than the $85,000 par value of stock to be issued therefor and Amazeen instructed*2713 the bookkeeper to set up merchandise, i.e., the inventory, on the corporation's books at a total of $37,516.28.
The value of the inventory of stock and merchandise on hand on June 30 and July 1, 1920, was $22,295.45.
In its return for the period from July 1 to December 31, 1920, petitioner computed the cost of goods sold by using an opening inventory of $37,516.28 and the respondent in his computation used the figure of $22,295.45, which resulted in a reduction of the cost of goods sold by the amount of $15,220.83 and a corresponding increase in the gain derived.
OPINION.
TRUSSELL: The testimony of the witnesses establishes that the correct value of the inventory on July 1, 1920, was $22,295.45 and that the write-up in the amount of $15,220.83 on the petitioner's books was merely for the purpose of making the total of the assets equal the total par value of the stock issued therefor.
The correct value of the inventory on July 1, 1920, is the only question in issue and respondent's action must be affirmed.
Judgment will be entered for the respondent.