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Permtemp Corporation formed in 2012 and, for that year, reported the following book

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C:3-65 Permtemp Corporation formed in 2012 and, for that year, reported the following book income statement and balance sheet, excluding the federal income taxexpense, 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

 

 

Additional information for 2012:

 

 

• 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.

 

 

For 2013, 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

 

 

Additional information for 2013:

 

 

• 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 2013:

 

 

a. Prepare page 1 of the 2009 Form 1120, computing the corporation’s taxable income

 

 

and tax liability.

 

 

c. Prepare the 2009 Schedule M-3 for Form 1120.

 

Paper#51949 | Written in 05-Mar-2016

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