Knoxville musical sales, Inc. is located at 5500 Kingston Pike, Knoxville , TN 37919The corporation uses the calendar year and accrual basis for both book and tax purposes. It is engaged in the sale of musical instruments with an employer id number EIN of 75-2011009. The company incorporated on December 31, 2005 , and began business on January 2, 2006. table C:3-3 contains balance sheet information at January 1, 2009. and December 31, 2009. Table C:3-4 presents an income statement for 2009. These schedules are presented on a book basis. other information follows.
Estimated Tax payments (Form 2220):
The corporation deposited estimated tax payments as follows:
April 15,2009 $ 97,000
June15, 2009 196,000
September15, 2009 233,000
December 15,2009 233,000
Taxable income in 2008 was $1,500,000, and the 2008 tax was $510,000. The corporation earned its 2009 taxable income evenly throughout the year. Therefore, it does not use the an or seasonal methods.
Inventory and Cost of Goods sold( Schedule A):
The corporation uses the periodic inventory method and prices its inventory, and purchases lower of FIFO cost market. Only beginning inventory, ending inventory, and purchases should be reflected in Schedule A. No other costs or expenses are allocated to cost of goods sold. Note: the corporation is exempt from the uniform capitalization(UNICAP) rules because average gross income for the previous three years was less than $10 million.
Knoxville Musical sales Inc. Book balance Sheet Information
ACCOUNT January 1, 2009 December 31, 2009
Debit Credit Debit Credit
Cash $ 339,544 $ 427,967
Accounts Receivable 394,740 459,000
Allowance for doubtful acc. $ 33,553 $ 39,015
Inventory 2,125,000 2,975,000
Investment in corporate stock 190,000 85,000
Investment in Municipal bonds 20,000 20,000
Cash surrender value of ins. policy 25,000 35,000
Buildings 1,000,000 1,000,000
Accumulated depr.- Buildings 50,000 70,000
Equipment 900,000 1,450,000
Accumulated depr-Equipment 150,000 182,500
Trucks 200,000 200,000
Accumulated depr.- Trucks 60,000 100,000
Land 400,000 400,000
Deferred tax asset 14,618 13,714
Acc. payable 300,000 270,000
Notes payable (short term) 500,000 400,000
Accrued payroll taxes 12,750 15,938
Accrued state income taxes 7,650 12,750
Accrued federal income taxes 103,023
Bonds payable( long term) 1,800,000 1,200,000
Deferred tax liability 144,949 285,802
Capital stock-Common 850,000 850,000
Retain earnings-Unappropriated 1,700,000 3,536,653
TOTALS $5,608,902 $5,608,902 $7,065,681 $7,065,681
Line 9(a) Check (ii)
(b), (c) &k(d) Not applicable
(e) &( f) No
Compensation of officers (Schedule E):
a b c d f
Mary Travis 345-82-7091 100% 50 % $ 252,500
John Willis 783-97-9105 100 % 25 % 150,000
Chris Parker 465-34-2245 100% 25 % 150,000
For tax purposes, the corporation uses the direct write-off method of deducting bad debts. For book purposes, the corporation uses an allowance for doubtful accounts. during 2009, the corporation charged $34,000 to the allowance account, such amount representing actual write-offs for 2009.
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
Knoxville musical sales, Inc. Book Income Statement 2009
Sales $ 8,500,000
Returns ( 212,500 )
Net sales $ 8,287,500
Beginning Inventory $2,125,000
Ending Inventory 2,975,000
Cost of goods sold (3,825,000)
Gross profit $ 4,462,500
General Insurance 46,750
Net premium- Officers life ins. 38,250
Officer's compensation 552,500
other salaries 340,000
Legal and accounting fees 42,500
Charitable contributions 25,500
Payroll tax 53,125
Interest expense 178,500
bad debt exp. 39,462
Total expenses (1,588,767)
gain on sale of equipment 85,000
Interest on municipal bonds 4,250
Dividend income 10,200
Net gain on stock sales 16,000
Net income before income taxes $ 2,989,183
Federal income tax expense ( 1,003,780)
State income tax expense 63,750
Net Income $ 1,921,653
The corporation incurred 6,800 $ of organizational expenditures on January 2, 2006. For book purposes, the corporation expensed the entire expenditure. For tax purposes, the corporation elected under sec. 248 to deduct $ 5,000 in 2006 and amortize the remaining $1,800 amount over 180 months., with a full months amortization taken for January 2006. 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 march 7, 2009, for 75,000 $. The corp. acquired on December 15, 2008, for $ 45,000. The corporation also sold 75 shares of JSB Corp. common stock on June 17, 2009, for $ 46,000. The corporation acquired this stock on September 18, 2006, for $ 60,000. The corporation has an $ 8,000 capital carryover from 2008.
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$milion and placed it in service on january 2, 2006. The corporation acquired two pieces of equipment for 300,000 Equipment 1 and 600,000Equipment2. and placed them in service on january 2,2006. The corporation acquired the trucks for $200,000 and placed them in service on July 18,2007. The corporation did not make the expensing election under sec. 179 on any property acquire before 2009. Accumulated tax depreciation through December 31, 2008, on these properties is as follows:
Store buildings $75,890
Equipment 1 168,810
Equipment 2 337,620
On Nov. 16,2009. the corporation sold for $325,000 Equipment 1 that originally cost $300,000 on January 2,2006. the corporation had no sec.1231 losses from prior years. In a separate transaction on November 17,2009, the corporation acquired and placed in service a piece of equipment costing 850,000$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 2009 depreciation( reproduced in Appendix C of this text).
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 85,000$ 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.
PREPARE THE 2009 CORPORATE TAX RETURN FOR KNOXVILLE MUSICAL SALES,INC. ALONGWITH ANY NECESARY SUPPORTING SCHEDULES.
prepare schedule M3 and schedule B as well as schedule M-1 even though the IRS does not require both scheduleM1 and schedule M3
- Sent to Accounting Expert Tutor on 2/18/2011 at 2:12pm
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