Corporation Income Tax Return Project, Taxation

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The following fictitious information is provided for the ACCY 171 Spring 2013 Corporation Income Tax Return Project.
Pharq Weston and Jeremy LeClair formed Modern Concepts, Inc., as a corporation on January 1, 2000. Modern Concepts, Inc.’s line of business is retail sales of home accessories. Relevant information pertaining to the corporation follows:
1. U. S. citizens Pharq Weston and Jeremy LeClair each own 50 percent of the corporation’s stock and devote 100 percent of their time to the business. Each receives compensation of $100,000. Pharq Weston’s Social Security number is 123-45-6789. Jeremy LeClair’s Social Security number is 987-65-4321.
2. The corporation address is 530 Hamilton Drive, Westbury, New York 11590. Its employer identification number is 76-5385624.
3. The corporation’s overall accounting method is the accrual method; it uses the lower-of-cost or market method for inventories. It uses MACRS depreciation for tax purposes and straight-line depreciation for financial reporting purposes. Its taxable year is the calendar year.
4. During 2012, the corporation distributed a $24,000 cash dividend (50 percent to each shareholder).
5. Net income per book (i.e., U. S. GAAP) for 2012 is $447,300.
6. During 2012, the corporation made estimated federal income tax payments of $204,200.
7. The corporation’s business activity code is 442299; its business activity is “Retail;” and its product or service is “Home Accessories.”
The following information pertains to the corporation’s 2012 income and expenses,
computed in accordance with U. S. generally accepted accounting principles (GAAP).
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??Account
???Debit
???Credit
????Gross sales
??????????$2,000,000
??????Sales returns and allowances
?$ 10,500
???Purchases
?????500,000
???????????Dividend income (from less-than-20- percent-owned corporation
??????60,000
????Interest income Corporate bonds State bonds
????6,000 4,500
Other income
??????5,000
????Premiums on key-person life insurance
?????9,500
???????????Compensation of officers
?200,000
???Salaries and wages of other employees
?????300,000
???????????Repairs and maintenance expense
?8,500
???Bad debt expense
?????15,000
???????????Rental expense
?85,000
???Taxes expense (other than Federal)
?????140,000
???????????Interest expense
Business loans
Loan to purchase state bonds
??20,000 7,500
??Charitable contributions
???12,000
???????Depreciation expense (per U. S. GAAP)
?????50,000
???????????Advertising expense
?3,000
???Employee benefit program contributions
?????45,000
???????????Other deductions
??65,000
????The corporation’s comparative balance sheets per books (U.S. GAAP) at January 1 and December 31, 2012 follow.
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2012 Comparative Balance Sheets Per Books
??Assets
???January 1, 2012
???December 31, 2012
???Cash
???$ 195,000
???$ 170,000
???Accounts receivable
?????125,000
?????155,000
????Allowance for bad debts
?(0 )
?( 15,000)
??Inventories
?????320,000
?????360,000
????Investment in corporate bonds
?50,000
?50,000
??Investment in state bonds
???65,000
???75,000
???Prepaid Federal income tax
?????0
?????7,000
????Equity investments
?285,000
?400,000
??Depreciable assets
?????480,000
?????480,000
????Accumulated depreciation
?(30,000)
?(80,000)
??Land
?????20,000
?????20,000
????Other assets
?2,500
?2,000
??Total assets
?????$1,512,500
???????$1,624,000
????????Liabilities & Equity
???January 1, 2012
???December 31, 2012
???Accounts payable
?????$ 210,000
?????$ 170,000
????Other current liabilities
?180,000
?60,419
??Mortgage payable
?????325,000
?????172,781
????Common stock
?362,500
?362,500
??Retained earnings
???435,000
???858,300
???Total liabilities & equity
????$1,512,500
??????$1,624,000
????Additional Information:
1. MACRS depreciation for 2012 is $85,000.
2. Classify the prepaid Federal income tax as “Other current assets” on Schedule L.
3. The investment in corporation bonds and the equity investments are long-term.
Classify them as “Other investments” on Schedule L.
4. The current portion of the mortgage payable at the beginning and the end of the
year is $152,219 and $100,000, respectively.
5. The corporation income tax rates are in Appendix A-15 of your textbook and on
page 17 of the Instructions for Form 1120 at the IRS website.
6. With regard to Schedule K, information is provided for you to complete the
following portions: 1, 2, 9, 10, and 13.
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REQUIREMENT: Prepare Modern Concepts, Inc.’s 2012 Federal income tax return, which will consist of the following forms and schedules:
?Form 1120 Schedule C Schedule J Schedule K Schedule L Schedule M-1
U. S. Corporation Income Tax Return Dividends and Special Deductions Tax Computation and Payment
Other Information
Balance Sheet per Books
Reconciliation of Income (Loss) per Books With Income per Return
Analysis of Unappropriated Retained Earnings per Books (Line 25, Schedule L)
Schedule M-2 ------------------------------------------------------------------------------------------------
Form 1125-A Schedule G
Form 1125-E
Instructions:
Cost of Goods Sold. (This form must be downloaded separately at the IRS web site.)
Information on Certain Persons Owning the Corporation’s Voting Stock (This schedule must be downloaded separately at the IRS web site.)
Compensation of Officers. (This form must be downloaded separately at the IRS web site.)
????????IRS Web Site: https://www.irs.gov
?????1. You must use the forms at the IRS web site. Enter the information into the forms and schedules at your computer, print them, and turn them in. Handwritten returns will not be graded.
2. You are not permitted to prepare the returns with tax software. Returns prepared with tax software will not be graded.
3. Submit the forms/schedules in the order in which they are identified on this page. This is the order that is specified on page 4 of Instructions for Form 1120 at the IRS web site.
4. Submit the return with a cover page that includes the following:
ACCY 171, Spring 2013
Corporation Income Tax Return Project
Your name word-processed and your ACCY 171 section number.
Check figures are at SacCT.
You are encouraged to confer with me as you work on the return.
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