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Permtemp Corporation formed in 2011 and for that year reported the following bookincome statement and balance sheet excluding the federal income tax expense deferredtax assets and deferred tax liabilities:Sales $20000000Cost of goods sold )Gross profit $ 5000000Dividend income 50000Tax-exempt interest incomeTotal income $ 5065000Expenses:Depreciation $ 800000Bad debts 400000Charitable contributions 100000Interest 475000Meals and entertainment 45000OtherTotal expenses )Net loss before federal income taxes )Cash $ 500000Accounts receivable $ 2000000Allowance for doubtful accounts ) 1750000Inventory 4000000Fixed assets $10000000Accumulated depreciation ) 9200000Investment in corporate stock 1000000Investment in tax-exempt bondsTotal assetsAccounts payable $2610000Long-term debt 8500000Common stock 6000000Retained earnings )Total liabilities and equityAdditional information for 2011:The investment in corporate stock is comprised of less-than-20%-owned corporations.Depreciation for tax purposes is $1.4 million under MACRS.Bad debt expense for tax purposes is $150000 under the direct writeoff method.Limitations to charitable contribution deductions and meals and entertainmentexpenses must be tested and applied if necessary.Qualified production activities income is zero.Required for 2011:a. Prepare page 1 of the 2011 Form 1120 computing the corporation s NOL.b. Determine the corporation s deferred tax asset and deferred tax liability situation andthen complete the income statement and balance sheet to reflect proper GAAPaccounting under ASC 740. Use the balance sheet information to prepare Schedule L ofthe 2011 Form 1120.c. Prepare the 2011 Schedule M-3 for Form 1120.d. Prepare a schedule that reconciles the corporation s effective tax rate to the statutory34% tax rate.Note: For 2011 forms go to forms and publications previous years at the IRS websitewww.irs.gov.For 2012 Permtemp reported the following book income statement and balance sheetexcluding the federal income tax expense deferred tax assets and deferred tax liabilities:Sales $33000000Cost of goods sold )Gross profit $11000000Dividend income 55000Tax-exempt interest incomeTotal income $11070000Expenses:Depreciation $ 800000Bad debts 625000Charitable contributions 40000Interest 455000Meals and entertainment 60000OtherTotal expenses )Net income before federal income taxesCash $ 2125000Accounts receivable $ 3300000Allowance for doubtful accounts ) 2850000Inventory 6000000Fixed assets $10000000Accumulated depreciation ) 8400000Investment in corporate stock 1000000Investment in tax-exempt bondsTotal assetsAccounts payable $ 2120000Long-term debt 8500000Common stock 6000000Retained earningsAdditional information for 2012:Depreciation for tax purposes is $2.45 million under MACRS.Bad debt expense for tax purposes is $425000 under the direct writeoff method.Qualified production activities income is $3 million.Required for 2012:a.Prepare page 1 of the 2012 Form 1120 computing the corporation s taxable incomeand tax liability.b.Determine the corporation s deferred tax asset and deferred tax liability situation andthen complete the income statement and balance sheet to reflect proper GAAPaccounting ASC 740. Use the balance sheet information to prepare Schedule L of the2012 Form 1120.c.Prepare the 2012 Schedule M-3 for Form 1120.d.Prepare a schedule that reconciles the corporation s effective tax rate to the statutory34% tax rate.

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