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Determine the corporations deferred tax asset
Course:- Taxation
Reference No.:- EM131230124




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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:

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

 Total liabilities and equity

 

$20,425,000

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:

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 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

Answered:-

Verified Expert

This assignment pertains to US Corporate Tax Return (Form 1120 and Schedule M-3). Also required was the corporation’s deferred tax asset and deferred tax liability situation, and then completing the income statement and balance sheet to reflect proper GAAP accounting ASC 740. A reconciliation of effective tax rate was also done.



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    len1230124

    this assignment requires form 1120 for 2015 with the example of 2014 done. I have included the form 1120. Will need for oct 7thPrepare a schedule that reconciles the corporation’s effective tax rate to the statutory 34% tax rate.



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