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:

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