Expert answer:Need accounting help with an Income Tax Return
Answer & Explanation:Please see attached for the C-Corporation tax return assignment. You will also be required to complete a book-to-tax reconciliation (see attached Excel file). You are given the book numbers and you will input the book-tax temporary or permanent differences in the spreadsheet. The columns foot across so your book numbers plus the adjustments, negative for debit and positive for credit, will total the taxable number. You will complete page 1 of the Form 1120 and the Schedule M-1 on page 5 of the Form 1120. You do NOT need to complete the balance sheet or M-2 portions of page 5. The forms can be found on www.irs.gov or with a quick Google search. You need to have the latest version of Adobe to be able to type in the forms. C-Corp Tax Return Assignment.docxC-Corp_TR_Book_Tax Reconciliation.xlsxPlease finish it on time. Thank you.
c_corp_tax_return_assignment.docx
c_corp_tr_book_tax_reconciliation.xlsx
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C Corporation Tax Return Assignment
SMITH Corporation is a calendar-year corporation that began business on January 1, 2014. For
2014, it reported the following information in its current year audited income statement. Notes
with important tax information are provided below.
Required:
Identify the book-to-tax adjustments for SMITH.
a) Reconcile book income to taxable income and identify each book–tax difference as
temporary or permanent.
b) Compute SMITH’s regular income tax liability.
c) Complete SMITH’s Schedule M-1, page 5 of Form 1120
d) Complete SMITH’s Form 1120, page 1 (use 2013 form if 2014 form is unavailable).
Ignore estimated tax penalties when completing this form.
SMITH Corp. Income Stmt for Current Year
Revenue from sales
Cost of goods sold
Gross profit
Other income:
Income from investment in corporate stock
Interest income
Capital gains (losses)
Gain or loss from disposition of fixed assets
Miscellaneous income
Gross Income
Expenses:
Compensation
Stock option compensation
Advertising
Repairs and maintenance
Rent
Bad debt expense
Depreciation
Warranty expenses
Charitable donations
Meals and entertainment
Goodwill impairment
Organizational expenditures
Book Income
$40,000,000
(27,000,000)
$13,000,000
300,0001
20,0002
(4,000)
3,0003
50,000
$13,369,000
(7,500,000)4
(200,000)5
(1,350,000)
(75,000)
(22,000)
(41,000)6
(1,400,000)7
(70,000)8
(500,000)9
(18,000)
(30,000)10
(44,000)11
Other expenses
Total expenses
Income before taxes
Provision for income taxes
Net Income after taxes
(140,000)12
($11,390,000)
$ 1,979,000
(720,000)13
$ 1,259,00014
NOTES:
1. SMITH owns 30 percent of the outstanding Hobble Corp. (HC) stock. Hobble Corp.
reported $1,000,000 of income for the year. SMITH accounted for its investment in HC
under the equity method and it recorded its pro rata share of HC’s earnings for the year.
HC also distributed a $200,000 dividend to SMITH.
2. Of the $20,000 interest income, $5,000 was from a City of Seattle bond (issued in
2013) that was used to fund public activities, $7,000 was from a Tacoma City bond
(issued in 2012) used to fund private activities, $6,000 was from a fully taxable corporate
bond, and the remaining $2,000 was from a money market account.
3. This gain is from equipment that SMITH purchased in February and sold in December
(i.e., it does not qualify as §1231 gain).
4. This includes total officer compensation of $2,500,000 (no one officer received more
than $1,000,000 compensation).
5. This amount is the portion of incentive stock option compensation that vested during
the year (recipients are officers).
6. SMITH actually wrote off $27,000 of its accounts receivable as uncollectible.
7. Regular tax depreciation was $1,900,000 and AMT (and ACE) depreciation was
$1,700,000.
8. In the current year, SMITH did not make any actual payments on warranties it
provided to customers.
9. SMITH made $500,000 of cash contributions to qualified charities during the year.
10. On July 1 of this year SMITH acquired the assets of another business. In the process
it acquired $300,000 of goodwill. At the end of the year, SMITH wrote off $30,000 of the
goodwill as impaired.
11. SMITH expensed all of its organizational expenditures for book purposes. It expensed
the maximum amount of organizational expenditures allowed for tax purposes.
12. The other expenses do not contain any items with book–tax differences.
13. This is an estimated tax provision (federal tax expense) for the year. (In a subsequent
class period, we will learn how to compute the correct tax provision.) Assume that
SMITH is not subject to state income taxes.
14. SMITH calculated that its domestic production activities deduction (DPAD) is
$90,000. This amount is not included on the audited income statement numbers.
C-Corporation Tax Return Assignment
Smith Corporation Income Statement
Revenue from Sales
Cost of Goods Sold
Gross Profit
Other Income:
Income From Investment in Corporate Stock
Interest Income
Capital Gains (Losses)
Gain or Loss from Disposition of Fixed Assets
Miscellaneous Income
Total Other Income
Gross Income:
Expenses:
Compensation
Stock Option Compensation
Advertising
Repairs & Maintenance
Rent
Bad Debt Expense
Depreciation
Warranty Expense
Charitable Donations
Meals & Entertainment
Goodwill Impairment
Organizational Expenditures
Other Expenses
Total Expenses
Income Before Taxes
Provision for Income Taxes
Net Income After Taxes
Book Income
40.000.000
(27.000.000)
13.000.000
300.000
20.000
(4.000)
3.000
50.000
369.000
13.369.000
(7.500.000)
(200.000)
(1.350.000)
(75.000)
(22.000)
(41.000)
(1.400.000)
(70.000)
(500.000)
(18.000)
(30.000)
(44.000)
(140.000)
(11.390.000)
1.979.000
(720.000)
1.259.000
Debit
(Dr.)
Credit
Cr.
Taxable Income
40.000.000
(27.000.000)
13.000.000
300.000
20.000
(4.000)
3.000
50.000
369.000
13.369.000
(7.500.000)
(200.000)
(1.350.000)
(75.000)
(22.000)
(41.000)
(1.400.000)
(70.000)
(500.000)
(18.000)
(30.000)
(44.000)
(140.000)
(11.390.000)
1.979.000
(720.000)
1.259.000
Temporary
(T)/Permanent
(P)
…
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