Tax Return: The Information For Your Final Project Is Found

Tax Returnthe Information For Your Final Project Is Found In Problem C

The information for your Final Project is found in Problem C:3-66 on pages 3-66 through 3-68 of Prentice Hall’s Federal Taxation, 2015. Complete Form 1120 for 2013 and its related schedules. In order to complete this exercise, you must first download the tax form. The forms available from IRS.gov have document rights applied to them, allowing you to fill in all sections and to save your work. The only software required is Adobe Acrobat Reader, which should already be installed on your computer.

Problem 3-66 involves Melodic Musical Sales, Inc., a corporation engaged in selling musical instruments, with detailed balance sheet and income statement data as of and for the year 2013. The assignment requires preparing the 2013 Form 1120, including all relevant schedules, reflecting accurate taxable income, deductions, depreciation, capital gains and losses, and other pertinent tax details based on the provided financial and operational data. You must analyze various aspects such as inventory, fixed assets, depreciation methods, organizational expenditures, capital transactions, and dividends, and apply appropriate IRS rules and depreciation tables to determine taxable income and tax liabilities. Additional supporting schedules like Schedule M-3 and Schedule M-1 are optional but recommended to provide comprehensive reconciliation and proper disclosure of financial statement differences.

Paper For Above instruction

Introduction

The preparation of a corporate tax return entails a detailed analysis of a company's financial records, operational data, and adherence to tax law provisions. For Melodic Musical Sales, Inc., a musical instrument retail corporation, the goal is to accurately compute tax liabilities for the year 2013 by meticulously translating financial information into the IRS Form 1120 and supporting schedules. This process involves reconciling book income with taxable income, analyzing depreciation methods under different accounting standards, and considering the impact of capital transactions and organizational expenditures.

Company Overview and Financial Data

Melodic Musical Sales, Inc. is a corporation based in City, ST, with an EIN of XX-. Incorporated at the end of 2009 and operational since early 2010, the company reports financials on a calendar-year and accrual basis. The detailed balance sheet as of December 31, 2013, indicates total assets of approximately $9.78 million, with significant holdings in inventory, buildings, equipment, and trucks. The balance sheet also reflects liabilities such as accounts payable, notes payable, bonds payable, and accrued taxes, along with shareholders’ equity positions. The income statement reveals net income before taxes of approximately $2.17 million, driven by gross profits from sales of nearly $9.8 million and various expenses including salaries, depreciation, interest, and taxes.

Inventory and Cost Methodology

The inventory is valued using the periodic method at the lower of FIFO cost or market, with beginning and ending inventory balances reflected on Schedule C. Purchase data informs the cost of goods sold calculation. Accurate valuation impacts gross profit and taxable income calculation. For tax purposes, the company’s inventory costs and COGS are critical for determining taxable income, requiring adjustments for differences between book and tax depreciation or inventory valuation methods.

Depreciation and Fixed Assets

The company uses straight-line depreciation for financial statements and MACRS for tax purposes. The detailed depreciation schedules, including the sale of equipment and the acquisition of new assets, necessitate calculations under both methods. For example, assets like store buildings and trucks have specified useful lives, and their tax depreciation involves applying IRS MACRS tables, including the Section 179 expensing election for new equipment. Correctly calculating depreciation affects the taxable income and deferred tax calculations.

Organizational Expenditures and Capital Transactions

Melodic Musical Sales, Inc. incurred organizational costs of $14,000, of which $5,000 was deducted immediately, with the remaining amortized over 180 months per Sec. 248. These costs, along with capital sales and acquisitions, impacts deductions and basis calculations. The sale of stock shares results in capital gains or losses, requiring careful calculation of gains/losses based on original cost and sale proceeds, including the handling of capital loss carryovers from prior years.

Taxable Income Adjustments and Deductions

Additional adjustments include bad debts, which are accounted for using the direct write-off method for tax, differing from the allowance method for book purposes; dividends received; municipal bond interest; charitable contributions; and dividends paid. The company’s dividend distributions and related tax treatment influence the retained earnings and shareholder reporting. Recognizing these differences ensures compliance with IRS rules and accurate taxable income reporting.

Capital Gains and Losses

The sale of stock, particularly PDQ Corp. shares and JSB Corp. shares, involves calculating capital gain or loss based on cost basis and sale price. The existence of an $8,000 capital loss carryover from 2011 plays a role in netting gains and losses, affecting overall tax liability. Proper documentation of these transactions is essential for Schedule D filings.

Depreciation Calculations for Tax Purposes

Assets placed in service during 2010 and 2013 are subject to different depreciation methods. For assets like the store building, equipment, and trucks, the IRS MACRS tables dictate the depreciation expense. The sale of equipment before the end of its depreciable life triggers gain or loss calculations based on adjusted basis, considering accumulated depreciation. The acquisition of new equipment and elections under Sec. 179 impacts the current year's deductions and taxable income.

Tax Credits and Additional Taxes

The firm does not qualify for the U.S. production activities deduction, but other credits or adjustments may be applicable based on specific activities. The company's payments of estimated taxes, including quarterly deposits and prior year liabilities, form the basis of the tax payments calculation, and any excess or deficiency influences the final tax due.

Conclusion

Preparing the 2013 Form 1120 for Melodic Musical Sales involves integrating detailed financial information, compiling schedules for inventory, depreciation, and capital transactions, and ensuring compliance with tax laws. The complexities of depreciation calculations, capital gains, organizational expenses, and differences between book and taxable income underscore the importance of careful analysis. Proper documentation and adherence to IRS guidelines help the company accurately determine its tax liabilities and optimize its tax position.

References

  • Internal Revenue Service. (2015). Instructions for Form 1120, U.S. Corporation Income Tax Return. IRS.gov.
  • IRS. (2015). Publication 542, Corporations. IRS.gov.
  • IRS. (2015). Revenue Procedure 2015-20, MACRS Depreciation Tables. IRS.gov.
  • Prentice Hall. (2015). Federal Taxation, 2015 Ed. (Author: Robert J. Peroni, et al.).
  • Kirchler, E. (2011). Tax Compliance and Tax Morale. Evidence from Switzerland. European Journal of Law and Economics.
  • Martin, B., & Thomas, L. (2012). Corporate Tax Planning Strategies. Journal of Applied Business Research.
  • Scholes, M. S., et al. (2008). Financial Markets and Corporate Strategy. Pearson Education.
  • United States Department of the Treasury. (2013). Instructions for Schedule D (Form 1120). IRS.gov.
  • Baker, R. W. (2014). Capital Gains and Losses. Journal of Taxation.
  • Crane, D. (2010). XBRL and Financial Data Reporting. International Journal of Accounting Information Systems.

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