Reference no: EM131230124
TAX CASE ASSIGNMENT
For this assignment, we are going to prepare a corporate tax return (IRS Form 1120-Problem C:3-67-Permtemp Corporation). I have posted the 2014 Permtemp's completed IRS for 1120 to the doc sharing page. Please review/study and use as guide to prepare the 2015 Form 1120. Respond to all the requirements under 3-67.
TAX YEAR 2015
Note: For 2015 forms, go to forms and publications, previous years, at the IRS website, www.irs.gov.
For 2015, Permtemp reported the following book income statement and balance sheet, excluding the federal income tax expense, deferred tax assets, and deferred tax liabilities:
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Sales
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$33,000,000
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Cost of goods sold
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(22,000,000)
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Gross profit
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$11,000,000
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Dividend income
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55,000
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Tax-exempt interest income
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15,000
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Total income
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$11,070,000
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Expenses:
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Depreciation
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$ 800,000
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Bad debts
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625,000
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Charitable contributions
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40,000
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Interest
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455,000
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Meals and entertainment
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60,000
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Other
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4,675,000
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Total expenses
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(6,655,000)
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Net income before federal income taxes
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$ 4,415,000
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Cash
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$ 2,125,000
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Accounts receivable
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$ 3,300,000
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Allowance for doubtful accounts
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(450,000)
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2,850,000
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Inventory
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6,000,000
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Fixed assets
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$10,000,000
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Accumulated depreciation
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(1,600,000)
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8,400,000
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Investment in corporate stock
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1,000,000
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Investment in tax-exempt bonds
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50,000
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Total assets
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$20,425,000
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Accounts payable
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$ 2,120,000
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Long-term debt
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8,500,000
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Common stock
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6,000,000
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Retained earnings
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3,805,000
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Total liabilities and equity
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$20,425,000
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Additional information for 2015:
o Depreciation for tax purposes is $2.45 million under MACRS.
o Bad debt expense for tax purposes is $425,000 under the direct writeoff method.
o Qualified production activities income is $3 million.
Required for 2015:
a. Prepare page 1 of the 2015 Form 1120, computing the corporation's taxable income and tax liability.
b. Determine the corporation's deferred tax asset and deferred tax liability situation, and then complete the income statement and balance sheet to reflect proper GAAP accounting ASC 740. Use the balance sheet information to prepare Schedule L of the 2015 Form 1120.
c. Prepare the 2015 Schedule M-3 for Form 1120.
d. Prepare a schedule that reconciles the corporation's effective tax rate to the statutory 34% tax rate.
TAX YEAR 2014
C:3-67 Permtemp Corporation formed in 2014 and, for that year, reported the following book income statement and balance sheet, excluding the federal income tax expense, deferred tax assets, and deferred tax liabilities:
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Sales
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$20,000,000
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Cost of goods sold
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(15,000,000)
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Gross profit
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$ 5,000,000
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Dividend income
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50,000
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Tax-exempt interest income
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15,000
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Total income
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$ 5,065,000
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Expenses:
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|
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Depreciation
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$ 800,000
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Bad debts
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400,000
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Charitable contributions
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100,000
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Interest
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475,000
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Meals and entertainment
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45,000
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Other
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3,855,000
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Total expenses
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(5,675,000)
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Net loss before federal income taxes
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$ (610,000)
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Cash
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$ 500,000
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Accounts receivable
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$ 2,000,000
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Allowance for doubtful accounts
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(250,000)
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1,750,000
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Inventory
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4,000,000
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Fixed assets
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$10,000,000
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Accumulated depreciation
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(800,000)
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9,200,000
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Investment in corporate stock
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1,000,000
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Investment in tax-exempt bonds
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50,000
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Total assets
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$16,500,000
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Accounts payable
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$2,610,000
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Long-term debt
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8,500,000
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Common stock
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6,000,000
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Retained earnings
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(610,000)
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Total liabilities and equity
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$16,500,000
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Additional information for 2014:
o The investment in corporate stock is comprised of less-than-20%-owned corporations.
o Depreciation for tax purposes is $1.4 million under MACRS.
o Bad debt expense for tax purposes is $150,000 under the direct writeoff method.
o Limitations to charitable contribution deductions and meals and entertainment expenses must be tested and applied if necessary.
o Qualified production activities income is zero.
Required for 2014:
a. Prepare page 1 of the 2014 Form 1120, computing the corporation's NOL.
b. Determine the corporation's deferred tax asset and deferred tax liability situation, and then complete the income statement and balance sheet to reflect proper GAAP accounting under ASC 740. Use the balance sheet information to prepare Schedule L of the 2014 Form 1120.
c. Prepare the 2014 Schedule M-3 for Form 1120.
d. Prepare a schedule that reconciles the corporation's effective tax rate to the statutory 34% tax rate.
Attachment:- Assignment.rar
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