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You asked: "Problem C: 3-65: Permtemp Corporati...

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You asked: "Problem C: 3-65: Permtemp Corporation formed in 2008 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 2008: ? The investment in corporate stock is comprised of less-than-20%-owned corporations. ? Depreciation for tax purposes is $1.4 million under MACRS. ? Bad debt expense for tax purposes is $150,000 under the direct writeoff method. ? Limitations to charitable contribution deductions and meals and entertainment expenses must be tested and applied if necessary. ? Qualified production activities income is zero. Required for 2008: a. Prepare page 1 of the 2008 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 2008 Form 1120. c. Prepare the 2008 Schedule M-3 for Form 1120. d. Prepare a schedule that reconciles the corporation?s effective tax rate to the statutory 34% tax rate. Note: For 2008 forms, go to forms and publications, previous years, at the IRS website, www.irs.gov. For 2009, 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 $20,425,000 Additional information for 2009: ? Depreciation for tax purposes is $2.45 million under MACRS. ? Bad debt expense for tax purposes is $425,000 under the direct writeoff method. ? Qualified production activities income is $3 million. Required for 2009: a. Prepare page 1 of the 2009 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 2009 Form 1120. c. Prepare the 2009 Schedule M-3 for Form 1120. d. Prepare a schedule that reconciles the corporation?s effective tax rate to the statutory 34% tax rate.

 

Paper#4475 | Written in 18-Jul-2015

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