Reference no: EM132379368
Accounting Project Instructions -
1. Import the 12/31/2016, 12/31/2017 and 12/31/2018 trial balance for ABC Industries, Inc. into an Excel workbook named MAIN WORKBOOK. A heading identifying the company and the content of the spreadsheet should be included. Additionally, a key should be provided for the regions as follows:
- 0: Corporate
- 10: East
- 20: West
- 30: North
- 40: South
Ensure on all submitted assignments that the following format is used: Accounting for numeric fields with no decimals, and #/##/#### for date fields. (Month/Day/Year)
2. Calculate the Meals and Entertainment tax deduction for the year ended 12/31/2018.
3. Additionally, calculate the book/tax difference.
Tax Objectives:
- Understand the tax law related to non-deductible, partially deductible and fully deductible expenses
- Exhibit an ability to apply the rules under IRC Section 274 related to meals & entertainment
4. Analyzes the differences, where applicable, between tax and book accounting for prepaid expenses, reserves, and accruals, for the year ended December 31, 2018. Utilize the information provided in the Additional Information (located in Project 1 instructions) and the Additional Instructions provided below.
Additional Instructions:
1. Please make sure you read the additional information for ABC Industries, Inc. (located in Project 1 instructions).
2. One of the items you will be graded on is the calculation of the current period activity and the cumulative temporary differences. In order to determine the current period activity, you will need to determine the cumulative temporary difference at the beginning of the year as well as the cumulative temporary difference at the end of the year. This information should be included in your spreadsheet.
3. Temporary differences occur when an item of income, gain, expense or loss is taken into account in a different year (or years) for book purposes than for tax purposes. In general, temporary differences are found in a Company's balance sheet and can be found in accounts such as prepaid expenses, accumulated depreciation, accrued payroll, accrued bonuses, accrued vacation pay, accrued warranties, accrued pension expense, etc. When determining the book/tax difference related to temporary differences, you need to make sure you consider all aspects of what is going on in your financial accounts and what is allowed for tax purposes - including the timing of income recognition and expense deduction (discussed in more detail below).
4. When you are determining the current year book/tax difference (current period activity) for an item, you need to consider what happened in the prior year. If you had an accrued item at 12/31/2017 for which economic performance had not occurred by that time and had not met the 2-1/2 month rule for deferred compensation or the 8-1/2 month rule for the recurring item exception (if applicable), then the amount accrued at 12/31/2017 would be deductible for tax purposes in 2018 as opposed to 2017 (which is the year it was deducted for book purposes). You would then consider the balance in that account at 12/31/2018 to determine if it was deductible for tax in 2018 or whether it needs to be deducted for tax in 2019. Assuming it should be deferred until 2019, then the amount of your 2018 book/tax difference is going to be the deduction of the 12/31/2017 balance adjusted for the add-back of the 12/31/2018 balance. For example, payroll accrued at year end but not paid within 2-1/2 months of year end does not meet the 2-1/2 month rule. Therefore, if the balance in accrued payroll was $500,000 at 12/31/2017 and was not paid by March 15, 2018 and the 12/31/2018 balance was $650,000 and also not paid by March 15, 2019, then the book/tax difference would be an unfavorable difference of $150,000 because you would be able to deduct for tax purposes the $500,000 in 2018 but not deduct the $650,000. Remember for book purposes the Company took at $650,000 deduction in 2018.
2018 Book Expense $650,000
Unfavorable Difference (150,000)
2018 Tax Expense $500,000
5. Make sure your spreadsheet details the beginning of the year cumulative temporary difference and the end of the year cumulative temporary difference. In the example shown above, the $500,000 would be the beginning of the year cumulative temporary difference and the $650,000 would be the end of the year cumulative temporary difference. All this means is that at 12/31/2017 the Company had deducted $500,000 of payroll expense for book purposes that hadn't been deducted for tax purposes. At 12/31/2018, the Company has now deducted the $500,000 of payroll expense for tax purposes, has deducted the $650,000 of payroll expense for book purposes but has not deducted the $650,000 for tax purposes yet. Thus creating a $650,000 cumulative temporary difference - payroll expense that had been deducted for book purposes but not for tax purposes as of 12/31/2018.
Attachment:- Accounting Project Files.rar