Complete Problem C-66. Form 1120 2012, pg 1, sch C, L, M-1, M-2, Sch D, and Form 4797 Sales of Business Property

Complete Problem C-66. Form 1120 2012, pg 1, sch C, L, M-1, M-2, Sch D, and Form 4797 Sales of Business Property. MOre InformationTo start out here is some basis information:1. Current year depreciation on property placed in service before 2012 is 183,816. This consists of Building (1,400,000 x 0.02564) which equals 35,896, Equipment 1 (320,000 x 0.1249 x 0.5) which equals 19,984, Equipment 2 (640,000 x 0.1249) which equals 79,936, and Trucks (250,000 x 0.192) which equals 48,000.2. Current year depreciation on equipment placed in service in 2012 is 553,000. This consists of 500,000 for Section 179 expensing, and 53,350 MACRS, mid-year [(2,000,000 – 500,000) x 0.0357].3. The total number for 2012 “off book” depreciation expense is 737,366.4. The organizational expenditure deduction for 2012 is 400 which was is an “off book” expense that was not deducted on the books but is deductible for tax purposes.5. Capital Gains and Losses for 2012 – Schedule D consists of a short-term capital gain on sale of PDQ stock, and a long-term capital loss on sale of JSB stock. Also, the text talks about a capital loss carryover which also needs to be included on Schedule D. This capital loss carryover os also a “off book” expense that is utilized in the 2012 return via Schedule D. *** NOTE: The problem tells you that the Equipmant 1 selling price is 325,000 which in incorrect. The actual selling price that you need for the purposes of Form 4797 is 360,000 and not 325,000 that the problem in the text gives you. NOTE *** 6. Sale of Equipment 1 – Form 4797 consists of a realized gain of 240,048. Of this 240,048 gain, 1200,048 is section 1245 recapture and 40,000 is section 1231 gain. To handle the Sale of Equipment 1, you start by entering the figures on page 2 part III with the results on lines 31 and 32 going on page 1 in parts I and II.7. Omit Form 2220 and just insert 3,169 of underpayment penalty on Form 1120, page 1, line 33.8. Don’t forget to record the 2012 estimated tax payments on line 32. There are some key numbers that you need. For example Form 1120, Line 11, total income, should be 5,248,948, line 28, taxable income before net operating loss deduction and special deductions, should be 2,883,547, line 30 taxable income should be 2,875,567, line 31, total tax, should be 977,693 and line 34, amount owed also needs an amount and I want you to determine that amount. See the instructions. Amount owed is determined by adding lines 31 plus 33 and deducting from that the amount on line 32. Schedule L, lines 15, total assets, and 28, total liabilities and shareholders’ equity, beginning of the year should be 5,941,457 while the end of the year should be 8,361,561. Line 6, other current assets, should be the net current deferred tax asset of 10,220 and 8,721 for the beginng and end of the year, respectively. Line 21, other liabilities should be the net non-current deferred tax liability at the beginning of the year of 158,657 and 284,588 at the end of the year. Schedule M-1 should have a line 1, net income per books, of 2,115,218 and line 10, income per return of 2,883,547 as shown on line 28, page 1 of Form 1120. Remember that the purpose of Schedule M-1 is to show the difference between book income and taxable income. Remember the timing differences that we talked about and that things such as bad debts, depreciation expense, tax exempt interest and other such items can be handled one way per books and a different way for tax purposes. The spreadsheet that we started using in unit 3 will be very helpful to you in determining the difference between book income and taxable income and the amounts of adjustments that should be on Schedule M-1. Schedule M-2 should have a beginning balance on line 1 of 1,900,000 and line 8, balance at the end of the year of 3,920,218.

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