Reference no: EM13683140

Please compete the comprehensive problem 4-58 from 2014 book. You should use MS Excel to complete this assignment so I can follow your calculations and formulas. No other format will be accepted.

 C: 4-58     Comprehensive Problem

Several years ago, Brian formed Sigma Corporation, a retail company ineligible for the U.S. production activities deduction. Sigma uses the accrual method of accounting. In 2013, the corporation reported the following items:

 Gross profit ……………………………………………………………………………………..$290,000

Long-term capital gain ……………………………………………………………………. 20,000

Tax-exempt interest received………………………………………………………….. 7,000

Salary paid to Brian………………………………………………………………………….. 80,000

Payroll tax on Brian’s salary (sigma’s share)………………………………….. 6,000

Depreciation………………………………………………………………………………………. 25,000 ($21,000 for E&P purposes)

Other operating expenses…………………………………………………………………. 89,000

Dividend distribution to Brian……………………………………………………………. 60,000

 In addition to owning 100% of Sigma’s stock, Brian manages Sigma’s business and earns the $80,000 salary listed above. This salary is an ordinary and necessary business expense of the corporation and is reasonable in amount. The payroll tax on Brian’s $80,000 salary is $12,000, $6,000 of which Sigma pays and deducts, and the other $6,000 of which Brian pays through Social Security withholding. Brian is single with no dependents and claims the standard deduction.

a.Calculate Sigma’s and Brian’s 2013 taxable income and total tax liability, as well as their combined tax liability. Also, calculate the corporation’s current E&P after dividend distribution.

b. Assume instead that Brian operates Sigma as a sole proprietorship. In the current year, the business reports the same operating results as above, and Brian withdraws $140,000 in lieu of the salary and dividend. Assume Brian’s self-employment tax is $17,000. Compute Brian’s total tax liability for 2013.

 c. Assume a C corporation such as in Part a distributes all of its after-tax earnings. Compare the tax treatment of long-term capital gains, tax-exempt interest, and operating profits if earned by a C corporation with the tax treatment of these items if earned by a sole proprietorship.