Acc 404 corporate tax return project – summer 2016

ACC 404 Corporate Tax Return Project – Summer 2016Using the following information, prepare a corporate tax return for 2015. It is due on Monday, August 1,2016. You may work on it in a group with up to two other students (maximum of 3 students per group).Print your name (or the names of your team members) on a cover page and staple in the top left corner(no other cover is required).You can download the tax forms from the IRS website (www.irs.gov). In addition to the basic Form 1120(all 5 pages), you will need to complete (1) a “white paper schedule” showing the details when severalitems need to be added together but the forms do not have space to report the detail or anywhere theforms state “attach schedule” (such as “other deductions on line 26 of the Form 1120) and (2) yourmulti‐column book‐tax reconciliation showing how you determined the items that are reported onSchedule M‐1 (similar to Example C:3‐51 on page 3‐41 of your textbook). You do not need to computeany underpayment penalty and do not need to attach any other forms.Kailua Surf & Swim, Inc. is located at 5432 Lunalilo Road, Kahala, Hawaii 96816. The corporation uses thecalendar year and accrual basis for both book and tax purposes. It is engaged in the retail sale of surfingequipment and clothing. Its employer identification number is 65‐1234567. It is not a subsidiary ormember of a control group and does not own any foreign entities. The company incorporated onDecember 31, 2011 and began business on January 1, 2012.The book balance sheet at January 1, 2015 and December 31, 2015 are included in a separate excel filealong with the book income statement for 2015.The corporation made estimated federal income tax payments of $960,000 during 2015.Organizational expenditures: The corporation incurred $11,000 of organizational expenditures onJanuary 1, 2012. For book purposes, the corporation expensed the entire amount in 2012. Fortax purposes, the corporation elected under Section 248 to deduct $5,000 in 2012 and amortizethe remaining $6,000 over 180 months. The corporation reports this amortization on Form 4562but includes it in “other deductions” on Form 1120, Line 26.Bad Debts: For tax purposes, the corporation uses the direct write off method of deducting bad debts.For book purposes, the corporation uses the allowance method. During 2015, the corporationcharged $38,000 to the allowance account; this is the amount of actual write offs for 2015.Capital gains and losses: The corporation sold two blocks of stock this year. One resulted in a $134,000short‐term capital gain and the other resulted in a $12,000 long‐term capital loss. Thecorporation also has an $8,000 capital loss carryover from 2015.Depreciation: For book purposes, the corporation uses straight‐line depreciation over the useful lives ofassets; this is reflected in the book financial statements. For tax purposes, all assets are MACRSproperty and the tax depreciation expense for 2015 is $601,318.Other information: The corporation is owned by 3 individual shareholders. One individual owns 50% of the stockand the other two shareholders each own 25%. The corporation paid $95,000 in cash dividends to its shareholders during 2015 and charged thepayment directly to retained earnings. This was considered a dividend paid out of earnings &profits for tax purposes. The corporation received dividends from taxable, domestic corporations in which it owns 12%. The state income tax shown in the book financial statements is the same amount of taxesactually incurred during the year. Ignore the AMT and accumulated earnings tax. The corporation is not entitled to any tax credits. The corporation had no Section 1231 gains or losses in prior years and no net operating losses. The corporation did not issue any debt instruments with original issue discount. The corporation is not required to file Schedule UTP. The corporation did file all appropriate Forms 1099 for the year. The corporation did not have any change in ownership during the year and did not dispose ofmore than 65% of the value of its assets. The corporation did not receive any assets in a Section 351 transfer with a FMV in excess of $1million. The corporation does not qualify for the domestic production activities deduction. The tax liability owed (that should be reported on line 34 on page 1 of Form 1120) is equal tothe amount of accrued federal income taxes reported on the balance sheet. You do not need todetermine any underpayment penalty. In assembling the information to prepare Schedule M‐1, I encourage you to do yourreconciliation (getting from book to taxable income) in excel, but please remember to print itout and attach it to your return. The number shown on line 10 of Schedule M‐1 must agree withthe number shown on page 1, line 28 of Form 1120. Dollar amounts are all rounded to the nearest dollar. Do not show “00” for the pennies; justleave the area blank. If there is no dollar amount for a particular line, you can just leave it blank.

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