Tax Assignment

The exercise listed below is found on page 3-67 through 3-70 of Prentice Halls Federal Taxation 2015. Tax Form/Return Preparation Problem C:3-67 Required for 2012: part a. Prepare and submit page 1 of a Corporation Tax Return (In order to complete this exercise, you must first download the following tax form) Directions for Using the PDF Tax Forms from www.IRS.gov The forms available from IRS.gov have document rights applied to them. Unlike most other PDF forms you may have encountered, these rights applied to these forms allow you to fill in all sections and to save your work. The only software required to use these forms is the Adobe? Acrobat? Reader?, which should already be installed on your computer. If you do not have Adobe Acrobat Reader, you can download it for free here. I believe I provided the information you need from the book but if you need more feel free to go in and get it. C:3-67 Permtemp Corporation formed in 2012 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: Sales $20,000,000 Cost of goods sold (15,000,000) Gross profit $5,000,000 Dividend income 50,000 Tax-exempt interest income 15,000 Total income $ 5,065,000 Expenses: Depreciation $800,000 Bad debts 400,000 Charitable contributions 100,000 Interest 475,000 Meals and entertainment 45,000 Other 3,855,000 Total expenses (5,675,000) Net loss before federal income taxes $ (610,000) Cash $500,000 Accounts receivable $ 2,000,000 Allowance for doubtful accounts (250,000) 1,750,000 Inventory 4,000,000 Fixed assets $10,000,000 Accumulated depreciation (800,000) 9,200,000 Investment in corporate stock 1,000,000 Investment in tax-exempt bonds 50,000 Total assets $16,500,000 Accounts payable $2,610,000 Long-term debt 8,500,000 Common stock 6,000,000 Retained earnings (610,000) Total liabilities and equity $16,500,000 Additional information for 2012: The investment in corporate stock is comprised of less-than-20%-owned corporations. Depreciation for tax purposes is $1.4 million under MACRS. Bad debt expense for tax purposes is $150,000 under the direct writeoff method. Limitations to charitable contribution deductions and meals and entertainment expenses must be tested and applied if necessary. Qualified production activities income is zero. Required for 2012: Prepare page 1 of the 2012 Form 1120, computing the corporations NOL. Determine the corporations 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 2012 Form 1120. Prepare the 2012 Schedule M-3 for Form 1120. Prepare a schedule that reconciles the corporations effective tax rate to the statutory 34% tax rate. Note: For 2012 forms, go to forms and publications, previous years, at the IRS website, www.irs.gov. For 2013, Permtemp reported the following book income statement and balance sheet, excluding the federal income tax expense, deferred tax assets, and deferred tax liabilities: Sales $33,000,000 Cost of goods sold (22,000,000) Gross profit $11,000,000 Dividend income 55,000 Tax-exempt interest income 15,000 Total income $11,070,000 Expenses: Depreciation $800,000 Bad debts 625,000 Charitable contributions 40,000 Interest 455,000 Meals and entertainment 60,000 Other 4,675,000 Total expenses (6,655,000) Net income before federal income taxes $ 4,415,000 Cash $ 2,125,000 Accounts receivable $ 3,300,000 Allowance for doubtful accounts (450,000) 2,850,000 Inventory 6,000,000 Fixed assets $10,000,000 Accumulated depreciation (1,600,000) 8,400,000 Investment in corporate stock 1,000,000 Investment in tax-exempt bonds 50,000 Total assets $20,425,000 Accounts payable $ 2,120,000 Long-term debt 8,500,000 Common stock 6,000,000 Retained earnings 3,805,000 $20,425,000 Additional information for 2013: Depreciation for tax purposes is $2.45 million under MACRS. Bad debt expense for tax purposes is $425,000 under the direct writeoff method. Qualified production activities income is $3 million. Required for 2013: Prepare page 1 of the 2013 Form 1120, computing the corporations taxable income and tax liability. Determine the corporations 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 2013 Form 1120. Prepare the 2013 Schedule M-3 for Form 1120. Prepare a schedule that reconciles the corporations effective tax rate to the statutory 34% tax rate. CASE STUDY PROBLEMS C:3-68 Marquette Corporation, a tax client since its creation three years ago, has requested that you prepare a memorandum explaining its estimated tax requirements for the current year. The corporation is in the fabricated steel business. Its earnings have been growing each year. Marquettes taxable income for the last three tax years has been $500,000, $1.5 million, and $2.5 million, respectively. The Chief Financial Officer expects its taxable income in the current year to be approximately $3 million. Required: Prepare a one-page client memorandum explaining Marquettes estimated tax requirements for the current year, providing the necessary supporting authorities. C:3-69 Susan Smith accepted a new corporate client, Winter Park Corporation. One of Susans tax managers conducted a review of Winter Parks prior year tax returns. The review revealed that an NOL for a prior tax year was incorrectly computed, resulting in an overstatement of NOL carrybacks and carryovers to prior tax years. Apply the Statements on Standards for Tax Services (SSTSs) to the following situtations. The SSTSs are in Appendix E of this text. Assume the incorrect NOL calculation does not affect the current years tax liability. What recommendations (if any) should Susan make to the new client? See SSTS No. 6. Assume the IRS is currently auditing a prior year. What are Susans responsibilities in this situation? See SSTS No. 6. Assume the NOL carryover is being carried to the current year, and Winter Park does not want to file amended tax returns to correct the error. What should Susan do in this situation? See SSTS No. 1. C:3-70 The Chief Executive Officer of a client of your public accounting firm saw the following advertisement in a financial newspaper: DONATIONS WANTED The Center for Restoration of Waters A Nonprofit Research and Educational Organization Needs DonationsAutos, Boats, Real Estate, Etc. ALL DONATIONS ARE TAX-DEDUCTIBLE Prepare a memorandum to your client Phil Nickelson explaining how the federal income tax laws regarding donations of cash, automobiles, boats, and real estate apply to corporate taxpayers.

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