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Over the next five years, Wal-Mart plans to donate about 1.1 billion pounds of food to food banks and provide $250 million to help them buy refrigerated trucks, improve storage and develop better logistics.

The plan to contribute $2 billion in cash and food to the nation’s food banks is considered to be one of the largest corporate gifts on record.

Wal-Mart began taking on hunger as a cause in 2005, when it distributed 9.9 million pounds of food to food banks; last year, it provided 116.1 million pounds of food. The company also has donated the services of its staff to help food banks improve lighting and refrigeration, and develop ways to increase the amount of fresh food on their shelves.

Questions:

1.According to Robert Midler, when are merchandisers eligible for enhanced deductions for a charitable contribution of inventory under the U.S. tax code?  Would Wal-Mart’s effort qualify?

2. Using the video, can you identify which accounts of a merchandiser would be affected when making the journal entries for donated inventory? 

3. Assuming that Wal-Mart’s revenue on the donated food would be $1.5 Billion, its cost would be $0.875 Billion, $250 million was donated for trucks and $250 million was donated through services of Wal-Mart staff, create the journal entries for the cash merchandise and service donation for the financial statements.

Source:

Midler, Robert (1993). Tax benefits of donating inventory – some donations may also qualify for enhanced deduction.The Tax Adviser, January 1 (Retrievable online at http://www.allbusiness.com/accounting-reporting/corporate-taxes/351023-1.html)

Strom, Stephanie (2010). Wal-Mart donates $2 billion to food banks, New York Times, May 13. (Retrievable online at http://www.postbulletin.com/newsmanager/templates/localnews_story.asp?z=7&a=452224)

Nerdenterprises.  (2010). “Accounting For Donated Inventory In QuickBooks video,” May 4 (Retrievable online at http://www.youtube.com/watch?v=B9-N2ZmUMhs)

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