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UnAdjusted Adjusted Tax Tax 1120

Book Balance Adjustment Book Balance Adjustment Trial Balance Tax Return
Description DR CR DR CR DR CR DR CR DR CR Summary Tic Marks

Sales 2,100,000 2,100,000 2,100,000


Dividend Received 5,000 5,000 5,000
Interest Income on US Treasury Bonds 10,000 10,000 10,000
Long Ter Capital gain 7,000 7,000 7,000 -
Purchases 700,000 700,000 700,000
Salaries-Officers 210,000 210,000 210,000
Salaries-Sales & Clerical 265,000 265,000 265,000
Repairs & Maintenance 20,000 20,000 20,000
Bad Debt expense 5,000 5,000 4,000 1,000
Interest Expense 14,000 14,000 14,000
Charitable Contributions 60,000 60,000 60,000
Depreciation (per book) 40,000 40,000 10,000 50,000
Advertising 14,000 14,000 14,000
Meals & Entertainment 16,000 16,000 11,000 5,000
Taxes (State, local & payroll) 50,000 50,000 50,000
Life Insurance Premiums 10,000 10,000 10,000 -
Long Term Capital Loss 9,000 9,000 9,000 -
Federal Income Taxes paid 150,000 90,550 240,550 240,550 - 1,407,500 2,115,000
Dividend Paid 60,000 60,000 60,000 -
Dividend Received Deduction 3,500 3,500
Stock Valuation Loss 15,000 15,000 15,000 707,500 Taxable Income
Penalty for Underpayment 3,268 3,268 3,268 -
Cash 691,000 691,000 691,000
Accounts Receivable 31,000 31,000 31,000
Allowance for Doubtful accounts (6,000) (6,000) (6,000)
US Treasury Bonds 20,000 20,000 20,000
Stocks 70,000 70,000 70,000
Inventory 375,000 15,000 360,000 360,000
Equipment 405,000 405,000 405,000
Land 164,000 164,000 164,000
Building 500,000 500,000 500,000
Accumulated Depreciation (251,000) (251,000) (10,000) (261,000)
Accounts Payable-Tax Liability 93,818 93,818 334,318 334,318
Accounts Payable 350,000 350,000 - 350,000
Notes payable 400,000 400,000 - 400,000
Capital Stock 150,000 150,000 - 150,000
Retained Earnings 600,000 600,000 - 700,818

3,622,000 3,622,000 108,818 108,818 3,715,818 3,715,818 341,318 341,318 3,715,818 3,715,818

- - -
Schedule M-1: Reconciliation of income (Loss) per books with Income per Return.
1. Net Income (loss) per books: 450,182 The Tax-obligation payment is calculated
2. Federal Income Tax per books: 240,550 The FIT payment throughout the year w
3. Excess of Capital losses over cap gains: 2,000 The sum of these payments was under t
4. Income Subject to tax not recorded on books this year: Capital losses can only offset capital gain
5. Expenses recorded on books this year, not deducted on this return: then forward five years to offset Cap gai
a. Depreciation: Book Depreciation was less than tax trea
b. Charitable Contributions Charitable contributions were fully dedu
c. Travel & Entertainment: 5,000 The treatment of the Bengals box under
d. Other (itemize): For the tickets, the section before: IRC 2
Bad Debt Expense 4000 Actual Bad Debt Expense is deductible u
Tax Penalty assessed 3268 Underpayment penalty is calculated in t
Key employee Life Insurance: 10,000 22,268 Life Insurance Premiums are not deducti
6. Add lines 1-5: 715,000

7. Income recorded on books this year but not included on this return.
a. Tax exempt interest:
b. Other: Itemize

8. Deductions on this return not charged against book income this year.
a. Depreciation: 10,000 Depreciation was 50K under tax treatme
b. Charitable Contributions: The amounts will resolve when the asse
c. Other (Itemize):
10,000
9. Add lines 7 and 8: 10,000
10. Income - line 6 less line 9: 705,000
bligation payment is calculated in the sheet following.
ayment throughout the year was 150,000, paid on time.
of these payments was under the actual liability. Temporary
sses can only offset capital gains. Will carried back 3 years,
ard five years to offset Cap gains. T, but P if they expire
reciation was less than tax treatment. Not added back
e contributions were fully deductable. See Calculations.
ment of the Bengals box under IRC 274(l)(2)- Skyboxes
ckets, the section before: IRC 274(l)(1)(A), Permanent
d Debt Expense is deductible under IRC 166(d)(2) Temporary
ment penalty is calculated in the following sheets. Temporary
ance Premiums are not deductible under IRC 264. Permanent

tion was 50K under tax treatment, temporary difference.


unts will resolve when the asset(s) are fully depreciated
COMPUTATION OF TAXABLE INCOME
Sales 2,100,000 The first adj. from Book Valu
Dividend Received 5,000 amount. The book value was
Interest Income on US Treasury Bonds 10,000 shown to be only 1000. The
Long Term Capital gain It is fully deductible as it is in
2,115,000
Less: Cost of Goods Sold The depreciation under MAC
Opening Stock 375,000
Purchases 700,000 The meals & entertainment i
1,075,000 Meals & Entertainment
Closing Inventory 360,000 Cost
Gross Profit 715,000 Less: Cost of Suite

Gross Profit 1,400,000


50% Allowable Deductio
Operating Expenses
Salaries-Officers 210,000 Charitable Contribution is su
Salaries-Sales & Clerical 265,000 Charitable Contribution
Repairs & Maintenance 20,000 Taxable Income before DRD
Bad Debt expense 1,000 10% rate limitation:
Interest Expense 14,000 Maximum CC deduction 201
Charitable Contributions 60,000 Actual CC's 2013
Depreciation (per MACRS) 50,000
Advertising 14,000
Meals & Entertainment 5,000
Taxes (State, local & payroll) 50,000
Total Allowable Deductions 689,000

Taxable Income before DRD & NOL 711,000


DRD deduction: 3,500
Taxable income 2013: 707,500

The tentative dividends rece


COMPUTATION OF NET INCOME The dividends received dedu
Sales 2,100,000 Dividend Received
Dividend Received 5,000 Step 1: Tentative DRD
Interest Income on US Treasury Bonds 10,000 Dividend Received
Long Ter Capital gain 7,000 70% Limitation
2,122,000
Less: Cost of Goods Sold
Opening Stock 375,000 Step 2: Tentitative Taxable In
Purchases 700,000 -
1,075,000 Less: Tentative DRD
Closing Inventory 360,000
Gross Profit 715,000 Tentative Taxable Income
Gross Profit 1,407,000
Step 3: Taxable Income Limit
Operating Expenses Taxable Income b4 DRD
Salaries-Officers 210,000 Multiply By:
Salaries-Sales & Clerical 265,000 Taxable Income Limitatio
Repairs & Maintenance 20,000
Bad Debt expense 5,000 Step 4: Compare
Interest Expense 14,000 Tentative DRD
Charitable Contributions 60,000 Taxable Income Limitatio
Depreciation (per book) 40,000 Choose the lower
Advertising 14,000
Meals & Entertainment 16,000
Taxes (State, local & payroll) 50,000
Life Insurance Premiums 10,000
Long Term Capital Loss 9,000
Federal Income Taxes paid 240,550
Penalty Underpayment 3,268
956,818

Net Income B/4 Taxes 450,182

Corporation required to pay 100% of current year tax under IRC 6655, the penalty rate for underpayment is derived from IRC 6
Underpayment Penalty Statemen

Event Date Amount Due Amount Paid


Amount Due 4/15/2012 60,136
Payment 4/15/2012 37500

Amount Due 6/15/2012 60138


Payment 6/15/2012 37500

Amount Due 9/15/2012 60138


Payment 37500

Amount Due 12/15/2012 60138


Payment 12/15/2012 37500

Date Filed 3/15/2013


Total
The first adj. from Book Value is the Bad Debt expense being adjusted to actual
amount. The book value was estimated at 5000, but end of year adjustment was
shown to be only 1000. The IRS reference for Bad Debt Expense is IRC 166(d)(2)
It is fully deductible as it is incurred by a corporation in the course of business.

The depreciation under MACRS was 10,000 more than BV. (50K-40K)

The meals & entertainment is calculated as below:


Meals & Entertainment
16,000
Less: Cost of Suite 6,000
10,000

50% Allowable Deductio 5,000 IRC 274(l)(1)(A)

Charitable Contribution is subject to a 10% limitation as calculated below. IRC 170(b)(2)


Charitable Contribution
Taxable Income before DRD 711,000
10% rate limitation: - 10%
Maximum CC deduction 2013 71,100
Actual CC's 2013 60,000 Under the maximum, thus fully deductible

The tentative dividends received deduction is limited to 70% when owning <20% of stock. IRC 243(a)(1)
The dividends received deduction is limited to 70% of Corporation's taxable income. IRC 246(b)
Dividend Received Deduction
Step 1: Tentative DRD
Dividend Received 5,000
70% Limitation 3,500

Step 2: Tentitative Taxable Income


-
Less: Tentative DRD 3,500

Tentative Taxable Income (3,500)


Step 3: Taxable Income Limitation
Taxable Income b4 DRD 711,000
Multiply By: 70%
Taxable Income Limitatio 497,700.0

Step 4: Compare
Tentative DRD 3,500
Taxable Income Limitatio 497,700.0
Choose the lower 3,500

payment is derived from IRC 6621(a)(2)


derpayment Penalty Statement

Amount Paid Balance Due Percent # of days Penalty


60136 6% 0
37500 22636 6% 61 227

82774 6% 0
37500 45274 6% 92 685

105412 6% 0
37500 67912 6% 15 1016

128050 6% 0
37500 90550 6% 90 1340

90550
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