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DescriptionPlaced In Service DateBook LifeCostBeg Accum.Current DepEnding Accum.Warehouse1/1/201425 year straight line215,000(8,600)(8,600)(17,200)Manufacturing Equipment1/1/201415 year straight line60,000(4,000)(4,000)(8,000)Manufacturing Equipment1/1/201415 year straight line20,000(1,333)(1,333)(2,666)Vehicles1/1/20145 year straight line5,000(1,000)(1,000)(2,000)Warehouse1/1/201525 year straight line60,000- (2,400)(2,400)Vehicles1/1/20155 year straight line10,000- (2,000)(2,000)Total370,000(14,933)(19,333)(34,266)U.S. GAAPTax Return AssignmentAdvanced Corporate TaxFall 2016Magenta Manufacturing Inc. (MMI) is a corporation that is located at 16 Magenta Parkway, San Antonio, Texas 78249. MMI’s EIN is 81-7861497. MMI was incorporated on January 1, 2014 by Jessica Jayroe and was incorporated with cash that was used to acquire a business that manufactured wood furniture. Jessica Jayroe owns 100% of the outstanding stock of MMI. Business began immediately upon incorporation. MMI is an accrual basis taxpayer. Exhibit 1 and 2 are the U.S. GAAP financial statements provided by the client. MMI has the following assets and depreciation for book purposes: The above schedule was prepared and provided by the client. Exhibit 3 contains the depreciationtable for tax purposes. The manufacturing equipment is depreciated using a 7 years MACRs class life. Additionally, on December 31, 2015, MMI sold a piece of manufacturing equipment for $68,667 that MMI originally acquired 1/1/2014 for $20,000. Finally, for purposes of this assignment, assume §179 does not apply. MMI uses the First In First Out method of inventory for both book and tax purposes. Goodwill was placed in service for book purposes on 1/1/2014 and is being amortized over 25 years for GAAP. The original cost for goodwill was $120,000.Assume taxable income (before the §199 deduction) is equal to qualified production activities income (i.e. assume all items are part of Qualifying Production Activities Income). Assume that W-2 wages equals the sum of wages, production labor, and commission deduction on the tax return. The dividend income is from a domestic entity that MMI owns 5% of.
As part of the tax return, complete the M-1 schedule only. The M-3 is not required. The following should be followed for workpaper referencing:1.Every workpaper should be dated and initialed.2.Every workpaper should be numbered with a page number.3.Every number on the lead sheet should be referenced in (i.e. reference in means referencein on the left hand side of the number) from a detailed workpaper. The detailed workpaper must show the reference out (i.e. reference out means the reference to the leadsheet should be on the right hand side of the number being referenced).4.You lead sheet can be your tax return. 5.If the information was provided by MMI, then the information must be marked in some way to indicate that is was prepared by the client. (i.e. PBC)As part of your workpapers, prepare a reconciliation to the deferred taxes recorded by the client. Use a 35% tax rate for deferred tax and assume there are no state income taxes. Assume that MMI is not subject to AMT (ALTERNATIVE MINIMUM TAX). Do not completeForm 4626.Tax returns must be turned in in a small binder (one inch or smaller) or in a folder with brads. Referencing must be in red. Hints:The tax return must include the following Forms:1.Form 1120 pages 1-52.Form 1125-A3.Form 45624.Form 47975.Schedule D6.Form 8903You must calculate the charitable contribution deduction second to last and calculate the section 199 deduction last. You should complete Form 4797 and Schedule D before completing Form 1120 page 1.Your forms must be typed. You can find pdf forms that can be typed into at www.irs.gov/pub/irs-pdf/. This is not a group project. Do all of your own work. If you need help tying to the check figures below, call me, come to my office hours, or make an appointment to meet with me at a convenient time. Violation of this requirement will not be tolerated and may result in agrade of zero for this assignment. check figures using depreciation tables depreciation27,590gain53,954charitable cont93,210section 19973,232taxable income740,457
Here are the check figures after fixing for my depreciation error. You may be plus or minus a few dollars. That is not a big deal. It will be rounding. I used the tables for all assets except for the straight-line assets, which I just calculated using mid-month. You goal at the end is to tie out the deferred taxes. You will be off as noted below by $38 because of my depreciation error. check figuresadepreciation27,732 gain53,974 charitable cont93,198 section 199 73,222 taxable income740,358Deferred TaxPer Balance sheetAs Calculateddifference1/1/2015(484)(484) 012/31/201534,531 34,493 (38)Change35,015 34,977 (38)
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