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ACCT 412 Corporate Tax Return Problem 1
ACCT 412 Corporate Tax Return Problem 1
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Neither Form 4562 for depreciation nor Form 4797 for the sale of the equipment is required. Include the amount of tax depreciation and the tax gain on the equipment sale given in the problem (or determined from information given in the problem) on the appropriate lines on the first page of Form 1120.
Page C-14 Assume that AMI does not owe any alternative minimum tax.
If any information is missing, use reasonable assumptions to fill in the gaps.
The forms, schedules, and instructions can be found at the IRS Web site (Internal Revenue Service).
The instructions can be helpful in completing the forms.
Facts: Alvin’s Music Inc. (AMI) was formed in 2006 by Alvin Jones and Theona Smith.
Alvin and Theona officially incorporated their store on June 12, 2007.
AMI sells (retail) all kinds of music-related products including musical instruments, sheet music, CDs, and DVDs.
Alvin owns 60 percent of the outstanding common stock of AMI and Theona owns the remaining 40 percent.
AMI is located at 355 Music Way, East Palo Alto, CA 94303.
AMI’s Employer Identification Number is 29-5748859.
AMI’s business activity is retail sales of music-related products.
Its business activity code is 451140.
Officers of the corporation are as follows: Alvin is the chief executive officer and president (Social Security number 123-45-6789). Theona is the executive vice president (Social Security number 978-65-4321).
ACCT 412 Corporate Tax Return Problem 1
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Gwen Givens is the vice president over operations (Social Security number 789-12-3456).
Carlson Bannister is the secretary (Social Security number 321-54-6789).
All officers devote 100 percent of their time to the business and all officers are U.S. citizens.
Neither Gwen nor Carlson owns any stock in AMI.
AMI uses the accrual method of accounting and has a calendar year-end.
AMI made four equal estimated tax payments of $70,000 each.
Its tax liability last year was $175,000.
If it has overpaid its federal tax liability, AMI would like to receive a refund.
AMI paid a dividend of $80,000 to its shareholders on December 1.
AMI had ample earnings and profits (E&P) to absorb the distribution.
The following is AMI’s audited income statement for 2011:
AMI Income Statement For year ending December 31, 2011
Revenue from sales $3,420,000
Sales returns and allowances (40,000)
Cost of goods sold (834,000)
Gross profit from operations $2,546,000
Other income:
Capital gains 8,000
Gain from disposition of fixed assets 2,000
Dividend income 12,000
Interest income 15,000
Gross Income $2,583,000
AMI Income Statement For year ending December 31, 2011
Expenses:
Compensation (1,300,000)
Depreciation (20,000)
Bad debt expense (15,000)
Meals and entertainment (5,000)
Maintenance (5,000)
Charitable donations (27,000)
Property taxes (45,000)
State income taxes (60,000)
Other taxes (56,000)
Interest (62,000)
Advertising (44,000)
Professional services (32,000)
Pension expense (40,000)
Supplies (6,000)
Other expenses (38,000)
Total expenses (1,755,000)
Income before taxes 828,000
Federal income tax expense (260,000)
Net Income after taxes $ 568,000
Page C-15 Notes: AMI has a capital loss carryover to this year from last year in the amount of $5,000.
AMI’s inventory-related purchases during the year were $1,134,000.
AMI values its inventory based on cost using the FIFO inventory cost flow method.
Assume the rules of
ACCT 412 Corporate Tax Return Problem 1
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