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Knoxville Musical Sales, Inc. is located at 5500 Kingston Pike, Knox




Question;TAX FORM/RETURN PREPARATION PROBLEMSKnoxville Musical Sales, Inc. is located at 5500 Kingston Pike, Knoxville, TN 37919. Thecorporation uses the calendar year and accrual basis for both book and tax purposes. It isengaged in the sale of musical instruments with an employer identification number (EIN)of 75-2012010. The company incorporated on December 31, 2006, and began businesson January 2, 2007. Table C:3-4 contains balance sheet information at January 1, 2010,and December 31, 2010. Table C:3-5 presents an income statement for 2010. Theseschedules are presented on a book basis. Other information follows the tables.Knoxville Musical Sales, Inc.?Book Balance Sheet Information;January 1, 2010 December 31, 2010;Account Debit Credit Debit Credit;Cash $ 108,439 $ 510,574;Accounts receivable 429,570 499,500;Allowance for doubtful accounts $ 36,513 $ 42,458;Inventory 2,312,500 3,237,500;Investment in corporate stock 150,000 46,000;Investment in municipal bonds 30,000 30,000;Cash surrender value of insurance policy 40,000 50,000;Land 390,000 390,000;Buildings 1,250,000 1,250,000;Accumulated depreciation?Buildings 62,500 87,500;Equipment 928,000 2,840,000;Accumulated depreciation?Equipment 154,667 259,333;Trucks 210,000 210,000;Accumulated depreciation?Trucks 63,000 105,000;Deferred tax asset 15,815 14,436;Accounts payable 300,000 270,000;Notes payable (short-term) 500,000 400,000;Accrued payroll taxes 13,875 17,344;Accrued state income taxes 8,325 13,875;Accrued federal income taxes 79,541;Bonds payable (long-term) 1,800,000 2,500,000;Deferred tax liability 150,444 560,020;Capital stock?Common 925,000 925,000;Retain earnings?Unappropriated;Totals $5,864,324 $5,864,324 $9,078,010 $9,078,010;Knoxville Musical Sales, Inc.?Book Income Statement 2010;Sales $ 9,250,000;Returns);Net sales $ 9,018,750;Beginning inventory $2,312,500;Purchases 5,087,500;Ending inventory);Cost of goods sold);Gross profit $ 4,856,250;Expenses;Amortization $ ?0?;Depreciation 229,267;Repairs 19,240;General ins. 50,875;Net premium-Off. life ins. 41,625;Officer?s compensation 601,250;Other salaries 370,000;Utilities 66,600;Advertising 44,400;Legal and accounting fees 46,250;Charitable contributions 27,750;Payroll taxes 57,813;Interest expense 194,250;Bad debt expense;Total expenses (1,792,264);Gain on sale of equipment 91,600;Interest on municipal bonds 4,625;Net gain on stock sales 35,000;Dividend income;Net income before income taxes $ 3,206,311;Federal income tax expense (1,076,497);State income tax expense);Net income $ 2,060,439;Compensation of Officers (Schedule E);Mary Travis 345-82-7091 100% 50% $271,250;John Willis 783-97-9105 100% 25% 165,000;Chris Parker 465-34-2245 100% 25%;Total;Bad Debts;For tax purposes, the corporation uses the direct writeoff;method of deducting bad debts.;For book purposes, the corporation uses an allowance for;doubtful accounts. During 2010;the corporation charged $37,000 to the allowance account;such amount representing actual;writeoffs for 2010.;Additional Information (Schedule K);1 b Accrual 6-7 No;2 a 451140 8 Do not check box;b Retail sales 9 Fill in the correct amount;c Musical instruments 10 3;3 No 11 Do not check box;4 a No 12 Not applicable;b Yes, omit Schedule G 13 No;5 a No;b No;Organizational Expenditures;The corporation incurred $9,500 of organizational;expenditures on January 2, 2007.;For book purposes, the corporation expensed the entire;expenditure. For tax purposes;the corporation elected under Sec. 248 to deduct $5,000 in;2007 and amortize the;remaining $4,500 amount over 180 months, with a full month?s;amortization taken for;January 2007. The corporation reports this amortization in;Part VI of Form 4562 and;includes it in ?Other Deductions? on Form 1120, Line 26.Capital Gains and Losses:The corporation sold 100 shares of PDQ Corp. common stock on October 7, 2010, for$89,000. The corporation acquired the stock on December 15, 2009, for $48,000. Thecorporation also sold 75 shares of JSB Corp. common stock on June 17, 2010, for $50,000.The corporation acquired this stock on September 18, 2008, for $56,000. The corporationhas a $10,000 capital loss carryover from 2009.Fixed assets and;Depreciation;For;book purposes: the corporation uses straight- line depreciation over the useful;lives of assets as follows: Store building, 50 years: Equipment, 15 years(old);and ten years(new) and trucks, five years. The corporation takes a half-years;depreciation in the year of acquisition and the year of disposition and assumes;no salvage value. the book financial statements reflect these calculations.;For;tax purposes: All assets are MACRS property as follows: store building, 39;yearnonrezidential real property: equipment, seven year property: and trucks;five year property, and trucks, five year property.;The;corporation acquired the store building for 1.25 $milion and placed it in;service on january 2, 2007. The corporation acquired two pieces of equipment;for 288,000 Equipment 1 and 640,000Equipment2. and placed them in service on;january 2,2007. The corporation acquired the trucks for $210,000 and placed;them in service on July 18,2008. The corporation did not make the expensing;election under sec. 179 on any property acquire before 2009. Accumulated tax;depreciation through December 31, 2009, on these properties is as follows;Store;buildings $94,863;Equipment;1 162,058;Equipment;2 360,128;Trucks;109,200;On;September 1,2010. the corporation sold for $322,000 Equipment 1 that originally;cost $288,000 on January 2,2007. the corporation had no sec.1231 losses from;prior years. In a separate transaction on September 2, 2010, the corporation;acquired and placed in service a piece of equipment costing 2.2 million. $These;two transactions do not qualify as a like king exchange under reg. sec. 1.1031;(K)-1(a). The new equipment is seven year property. The corp. made the sec179;expensing election with regard to the new equipment and claimed bonus;depreciation. Where applicable, use published IRS depreciation tables to;compute 2010 depreciation(reproduced in Appendix C of this text).;other;information;The;corporation's activities do not qualify for the US production activities;deduction.;Ignore;the AMT and accumulated earnings tax.;The corporation;received dividends (see income statement) from taxable, domestic corporations;the stock of which Knoxville Musical Sales, Inc. owns less than 20 %.;The;corporation paid 92,500 $ in cash dividents to its shareholders during the year;and charged the payment directly to retained earnings.;The;state income tax in is the exact amount of such taxes incurred during the year.;The;corporation is not entitled any credits.;REQUIRED;PREPARE;THE 2010 CORPORATE TAX RETURN FOR KNOXVILLE MUSICAL SALES,INC. ALONGWITH ANY;NECESARY SUPPORTING SCHEDULES.;OPTIONAL;prepare;schedule M3 and schedule B as well as such


Paper#44499 | Written in 18-Jul-2015

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