ACCT 441 – Advanced Tax

postadmin Post in Uncategorized

ACCT 441 – Advanced Tax
C Corporation Tax Return
Banner, Inc. (a C corporation) is located at 90 Fifth Avenue, New York City, NY. The corporation uses the
calendar year and accrual basis for both book and tax purposes. It is engaged in the sale of selfprotection gear. Its employer identification number (EIN) is 12-12345687. The company was
incorporated on January 1, 1941 and began business on April 1, 1941.
Banner, Inc. made the following estimated tax payments for 2017:

April 15, 2017
June 15, 2017 		$100,000
200,000
September 15, 2017 235,000
December 15, 2017
Total 		235,000
$770,000

Taxable income in 2016 was $1.4 million and the 2016 tax was $476,000. The corporation earned its
2017 taxable income evenly throughout the year. Therefore, it does not use the annualization or
seasonal methods.
Inventory and Cost of Goods Sold:
The corporation uses the periodic inventory method and prices its inventory using the lower of FIFO
cost or market. Only beginning inventory, ending inventory, and purchases should be reflected on the
appropriate form. No other costs or expenses are allocated to cost of goods sold. The corporation is
exempt from the uniform capitalization (UNICAP) rules because average gross income for the
previous three years was less than $10 million. The following information should also be included on
the applicable form:

Line 9 (a) Check (ii)
(b),(c), & (d) Not applicable
(e) & (f) No

Compensation of Officers:

Officer Social Security # % Time Devoted
to Business		% of Stock Owned Amount of
Compensation
Diana Banner 123-45-6789 100 50 $ 246,500
Peter Bruce 987-65-4321 100 25 153,000
Wayne Prince 123-98-4567 100 25 153,000

Bad Debts:
For tax purposes, the corporation uses the direct write-off method of deducting bad debts. For book
purposes, the corporation uses an allowance for doubtful accounts. During 2017, the corporation
charged $34,000 to the allowance account, such amount representing actual write-offs for 2017.
Additional information for Schedule K:
1b Accrual 8 Do not check box
2a 451140 9 Fill in the correct amount
b Retail Sales 10 3

c Self-Protection Gear 11 Do not check box
3 No 12 Not applicable
4a No
Yes, omit Schedule G
No 		13-14 No
b 15a
b 		No
Do not check box
5a
b No 16-19 No
6-7 No

Capital Gains and Losses:
The corporation sold 100 shares of Shield Corp. common stock on October 7, 2017 for $125,000.
The corporation acquired the stock on December 15, 2016 for $95,000. The corporation also sold 75
shares of Metro Corp common stock on June 17, 2017 for $110,000. The corporation acquired this
stock on September 18, 2015 for $117,000. The corporation has a $10,000 capital loss carryover
from 2016. These transactions were not reported to the corporation on Form 1099-B.
Fixed Assets and Depreciation:
Book: The corporation uses straight-line deprecation over the useful lives of the assets as follows:
store building, 50 years; equipment, ten years; and trucks, five years. The corporation takes a halfyear’s depreciation in the year of acquisition and the year of disposition and assumes no salvage
value. The book financial statements reflect these calculations.
Tax: All assets are MACRS property as follows: store building, 39-year non-residential real property;
equipment, seven-year property; and trucks, five-year property. The corporation acquired the store
building for $1 million and placed it in services on January 2, 2014. The corporation acquired two
pieces of equipment for $200,000 (Equipment 1) and $400,000 (Equipment 2) and placed them in
service on January 2, 2014. The corporation acquired the trucks for $100,000 and placed them in
service on July 18, 2015. The trucks are not listed property and are no subject to the limitation on
luxury automobiles. The corporation did not make the expensing election under Sec. 179 or take
bonus depreciation on any property acquired before 2017. Accumulated depreciation through
December 31, 2016 on the properties is as follows:

Store building
Equipment 1 		$ 75,890
112,540
Equipment 2d 225,080
Trucks 52,000

On October 16, 2017 the corporation sold Equipment 1 for $230,000. The corporation had no Sec.
1231 losses from prior years. In a separate transaction on October 17, 2017 the corporation acquired
and placed in service a piece of equipment costing $ 500,000. Assume these transactions do not
qualify as like-kind exchange. The new equipment is seven-year property. The corporation made the
Sec. 179 expensing election for the entire cost of the property. Use published IRS depreciation
tables to compute the 2017 depreciation.
The balance sheet is follows:

January 1, 2017 December 31, 2017
Account Debit Credit Debit Credit
Cash $ 469,491 $ $ 953,648
Accounts Receivable 340,000 425,000
Allowance for doubtful accounts 17,000 21,250
Inventory 2,125,000 2,975,000
Investment in corporate stock 262,000 50,000
Investment in municpal bonds 30,000 30,000
Cash surrender value of insurance
policy		60,000 80,000
Land 300,000 300,000
Buildings 1,000,000 1,000,000
Accumulated Depreciation –
Buildings		50,000 70,000
Equipment 600,000 900,000
Accumulated Depreciation –
Equipment		150,000 165,000
Trucks 100,000 100,000
Accumulated Depreciation – Trucks 30,000 50,000
Accounts payable 300,000 270,000
Notes payable (short-term) 700,000 560,000
Accrued payroll taxes 12,648 15,810
Accrued state income taxes 3,825 6,375
Accrued federal income taxes 2,125 103,943
Bonds payble (long-term) 1,400,000 900,000
Net deferred tax liability 70,893 134,719
Capital stock – common 850,000 850,000
Retained earnings -unappropriated 1,700,000 3,666,551
Total $ 5,286,491 $ 5,286,491 $ 6,813,648 $ 6,813,648

The unaudited GAAP income statement for 2017 is as follows:

Sales $ 8,500,000
Returns (212,500)
Net sales $ 8,287,500
Beginning inventory $ 2,125,000
Purchases 4,675,000
Ending Inventory (2,975,000)
Cost of goods sold $ (3,825,000)
Gross profit $ 4,462,500
Expenses:
Depreciation $ 115,000
Repairs 17,680
Insurance 46,750
Net premium-Officers’ life insurance 25,500
Officers’ compensation 552,500
Other salaries 340,000
Utilities 61,200
Advertising 40,800
Legal and accounting fees 42,500
Charitable contributions 25,500
Payroll taxes 52,700
Interest Expense 178,500
Bad debt expense 38,750
Total expenses $ (1,536,880)
Gain on Sale of equipment 90,000
Interest on municpal bonds 4,250
Net gain on stock sales 23,000
Dividend income 10,200
Net income before income taxes $ 3,053,070
Federal income tax expense (937,769)
State income tax expense (63,750)
Net income $ 2,051,551

Other Information:
• The corporations’s tax rate in 2017 was 34%.
• The corporation’s activities do not qualify for the U.S. production activities deduction.
• Ignore the AMT and accumulated earnings tax.
• The corporation received dividends from taxable, domestic corporations, the stock of which
Banner owns less than 20%.
• The corporation paid $ 85,000 in cash dividends to its shareholders during the year and
charged the payment directly to retained earnings.
• The state income tax provided earlier is the exact amount of such taxes incurred during the
year.
• The corporation is not entitled to any credits.
• Ignore the financial statement impact of any underpayment penalties incurred on the tax
return.
Required: Prepare the 2017 corporate tax return for Banner, Inc. along with any necessary
supporting schedules, forms, etc. Prepare both the Schedule M-3 and M-1 but you may omit
Schedule B and Form 8916-A.
Notes:
1.) The dividends received deduction percentage in 2017 was 70% for less than 20% owned
property.
2.) Omit Form 2220 and insert $4,898 penalty on Form 1120, Page 1, Line 33.