Question
1. You are provided with the unadjusted trial balance (Microsoft Excel) and your managers meeting notes and questions (Microsoft Word) for your new tax client
1. You are provided with the unadjusted trial balance (Microsoft® Excel) and your manager’s meeting notes and questions (Microsoft® Word) for your new tax client – Phoenix Medical.
2. Following the notes, modify the unadjusted trial balance to generate a trial balance workpaper (in Microsoft® Excel) that includes:
a. Adjusting Journal Entries
3. The client depends on you, the CPA, to provide journal entries for activity in fixed assets. While discussing fixed assets, the client divulges that he got a great deal to upgrade his laser dermatology equipment. Ultimately, you find out that $569,888 of new equipment was purchased and placed in service on 6/18/2014.
4. Furthermore, and much after the fact, you discover that old medical equipment was sold to an unrelated party for $75,000 cash. The original cost of the equipment was $300,000 and it was fully depreciated (no Sec. 179). The cash was deposited in one of the shareholders personal accounts.
a. Provide a journal entry to calculate the gain on sale and adjust the fixed asset and accumulated depreciation accounts.
5. The client depends on his accountant to provide a journal entry for the annual depreciation expense. They have adopted a policy of treating book depreciation equal to tax depreciation. Depreciation expense for the year will include: a. Depreciation on assets placed in service prior to 2014 is: $86,769
b. Maximize Sec. 179 expense on assets placed in service in 2014.
c. Take Sec. 168(k) – 50% Bonus – on new equipment if applicable.
Week 3 Determine Taxable Income:
1. Determine taxable income. Show all adjustments in the Microsoft® Excel spreadsheet. Footnote references are provided to assist you.
2. The Dr. has filed his prior tax returns on the cash basis.
a. What questions will you ask to be sure he can continue to file on the cash basis?
3. You find that in 2014, the Dr. qualifies, and choose to file on the cash basis. His books are kept on the accrual basis. Determine the adjustments needed.
4. No federal taxes were paid in 2013, and no estimated taxes were paid in 2014.
5. Within the state tax expense, you find $4,389 is late payment penalties.
6. While analyzing the financial information, you find that hidden in “Accounts Payable” is $28,953 of accrued salaries. You also find that the salaries were paid in the first week of February. a. Does this have an impact on taxable income?
7. Determine the accrual to cash adjustments for accounts receivable and accounts payable.
8. A charitable contribution carryforward of $40,000 is available. 9. Included in insurance expense is $12,523 of officers’ life insurance. You determine the company is the beneficiary, and each officer is a greater than 20% shareholder
ONLY THE PORTION BELOW NEEDS TO BE COMPLETED TO SELL OBSOLETE EQUIPMENT & DEPRECIATION/SEC179.
| Date | Num | Memo | Account | Debit | Credit | ||||||
| ######## | 2014 Adj 1 | to sell obsolete equipment | 17000 · Accumulated Depreciation | ||||||||
| to sell obsolete equipment | 16100 · Medical Equipment | ||||||||||
| to sell obsolete equipment | 18100 · Loan to Shareholder | ||||||||||
| to sell obsolete equipment | 75000 · Gain on Sale of Assets | ||||||||||
| 0.00 | 0.00 | ||||||||||
| ######## | 2014 Adj 2 | to record 2014 depreciation on assets placed in service prior to 2014 | 62400 · Depreciation Expense | ||||||||
| to record 2014 depreciation on assets placed in service prior to 2014 | 17000 · Accumulated Depreciation | ||||||||||
| to record Sec. 179 expense | 62400 · Depreciation Expense | ||||||||||
| to record Sec. 179 expense | 17000 · Accumulated Depreciation | ||||||||||
| to record depreciation on assets placed in service in 2014 | 62400 · Depreciation Expense | ||||||||||
| to record depreciation on assets placed in service in 2014 | 17000 · Accumulated Depreciation | ||||||||||
| 0.00 | 0.00 | ||||||||||
| TOTAL | 0.00 | 0.00 | |||||||||
| Dec 31, 14 | Dec 31, 13 | $ Change | |||||||
| ASSETS | |||||||||
| Current Assets | |||||||||
| Checking/Savings | |||||||||
| 10001 · Checking | 609,842.00 | 277,131.00 | 332,711.00 | ||||||
| 10010 · Savings | 557,392.23 | 325,541.23 | 231,851.00 | ||||||
| 10020 · Cash Maximizer | 558,380.05 | 69,672.05 | 488,708.00 | ||||||
| Total Checking/Savings | 1,725,614.28 | 672,344.28 | 1,053,270.00 | ||||||
| Accounts Receivable | |||||||||
| 11000 · Accounts Receivable | 260,990.00 | 826,113.00 | -565,123.00 | ||||||
| Total Accounts Receivable | 260,990.00 | 826,113.00 | -565,123.00 | ||||||
| Other Current Assets | |||||||||
| 18100 · Loan to Shareholder | 75,000.00 | 0.00 | 75,000.00 | ||||||
| Total Other Current Assets | 75,000.00 | 0.00 | 75,000.00 | ||||||
| Total Current Assets | 2,061,604.28 | 1,498,457.28 | 563,147.00 | ||||||
| Fixed Assets | |||||||||
| 15000 · Furniture and Equipment | 40,316.00 | 40,316.00 | 0.00 | ||||||
| 15500 · Leasehold Improvements | 506,889.00 | 506,889.00 | 0.00 | ||||||
| 16100 · Medical Equipment | 1,399,776.00 | 1,129,888.00 | 269,888.00 | ||||||
| 17000 · Accumulated Depreciation | -1,568,773.00 | -1,240,071.00 | -328,702.00 | ||||||
| Total Fixed Assets | 378,208.00 | 437,022.00 | -58,814.00 | ||||||
| Other Assets | |||||||||
| 18001 · Investment in Big Labs | 3,206,518.00 | 2,306,518.00 | 900,000.00 | ||||||
| 18050 · Investment in R&D Company | 866,507.20 | 364,352.20 | 502,155.00 | ||||||
| Total Other Assets | 4,073,025.20 | 2,670,870.20 | 1,402,155.00 | ||||||
| TOTAL ASSETS | 6,512,837.48 | 4,606,349.48 | 1,906,488.00 | ||||||
| LIABILITIES & EQUITY | |||||||||
| Liabilities | |||||||||
| Current Liabilities | |||||||||
| Accounts Payable | |||||||||
| 20001 · Accounts Payable | 93,648.00 | 107,245.00 | -13,597.00 | ||||||
| Total Accounts Payable | 93,648.00 | 107,245.00 | -13,597.00 | ||||||
| Credit Cards | |||||||||
| 20100 · Credit Cards | 39,065.51 | 34,742.51 | 4,323.00 | ||||||
| Total Credit Cards | 39,065.51 | 34,742.51 | 4,323.00 | ||||||
| Other Current Liabilities | |||||||||
| 20200 · Accrued Salaries | 28,953.00 | 26,375.00 | 2,578.00 | ||||||
| Total Other Current Liabilities | 28,953.00 | 26,375.00 | 2,578.00 | ||||||
| Total Current Liabilities | 161,666.51 | 168,362.51 | -6,696.00 | ||||||
| Long Term Liabilities | |||||||||
| 28001 · Business Loan | 1,207,401.72 | 1,333,423.72 | -126,022.00 | ||||||
| Total Long Term Liabilities | 1,207,401.72 | 1,333,423.72 | -126,022.00 | ||||||
| Total Liabilities | 1,369,068.23 | 1,501,786.23 | -132,718.00 | ||||||
| Equity | |||||||||
| 30100 · Capital Stock | 1,000.00 | 1,000.00 | 0.00 | ||||||
| 31400 · Shareholder Distributions | -400,000.00 | 0.00 | -400,000.00 | ||||||
| 32000 · Retained Earnings | 3,103,563.25 | 3,103,563.25 | 0.00 | ||||||
| Net Income | 2,439,206.00 | 0.00 | 2,439,206.00 | ||||||
| Total Equity | 5,143,769.25 | 3,104,563.25 | 2,039,206.00 | ||||||
| TOTAL LIABILITIES & EQUITY | 6,512,837.48 | 4,606,349.48 | 1,906,488.00 | ||||||
| Unadjusted Balance | Book Adjustments | Adjusted Book Balance | Tax Adjustments | Adjusted Tax Balance | ||||||||||||||||
| Debit | Credit | Debit | Credit | Debit | Credit | Debit | Credit | Debit | Credit | |||||||||||
| 10001 · Checking | 609,842.00 | 609,842.00 | 609,842.00 | |||||||||||||||||
| 10010 · Savings | 557,392.23 | 557,392.23 | 557,392.23 | |||||||||||||||||
| 10020 · Cash Maximizer | 558,380.05 | 558,380.05 | 558,380.05 | |||||||||||||||||
| 11000 · Accounts Receivable | 260,990.00 | 260,990.00 | 260,990.00 | |||||||||||||||||
| 18100 · Loan to Shareholder | Adj 1 | 0.00 | 0.00 | |||||||||||||||||
| 15000 · Furniture and Equipment | 40,316.00 | 40,316.00 | 40,316.00 | |||||||||||||||||
| 15500 · Leasehold Improvements | 506,889.00 | 506,889.00 | 506,889.00 | |||||||||||||||||
| 16100 · Medical Equipment | 1,699,776.00 | Adj 1 | 1,699,776.00 | 1,699,776.00 | ||||||||||||||||
| 17000 · Accumulated Depreciation | 1,240,071.00 | Adj 1 & 2 | 1,240,071.00 | 1,240,071.00 | ||||||||||||||||
| 18001 · Investment in Big Labs | 3,206,518.00 | 3,206,518.00 | 3,206,518.00 | |||||||||||||||||
| 18050 · Investment in R&D Company | 866,507.20 | 866,507.20 | 866,507.20 | |||||||||||||||||
| 20001 · Accounts Payable | 122,601.00 | r | 122,601.00 | 122,601.00 | ||||||||||||||||
| 20100 · Credit Cards | 39,065.51 | 39,065.51 | 39,065.51 | |||||||||||||||||
| 20200 · Accrued Salaries | 0.00 | r | 0.00 | 0.00 | ||||||||||||||||
| 28001 · Business Loan | 1,207,401.72 | 1,207,401.72 | 1,207,401.72 | |||||||||||||||||
| 30100 · Capital Stock | 1,000.00 | 1,000.00 | 1,000.00 | |||||||||||||||||
| 31400 · Shareholder Distributions | 400,000.00 | 400,000.00 | 400,000.00 | |||||||||||||||||
| 32000 · Retained Earnings | 3,103,563.25 | 3,103,563.25 | 3,103,563.25 | |||||||||||||||||
| 43700 · Fee for Service Income | 5,050,583.00 | 5,050,583.00 | a | 5,050,583.00 | ||||||||||||||||
| 47300 · Refunds | 17,633.00 | 17,633.00 | 17,633.00 | |||||||||||||||||
| 60000 · Advertising and Promotion | 1,252.00 | 1,252.00 | 1,252.00 | |||||||||||||||||
| 60200 · Automobile Expense | 11,961.00 | 11,961.00 | 11,961.00 | |||||||||||||||||
| 60400 · Bank Service Charges | 8,808.00 | 8,808.00 | 8,808.00 | |||||||||||||||||
| 61000 · Business Licenses and Permits | 5,611.00 | 5,611.00 | 5,611.00 | |||||||||||||||||
| 61100 · Charitable Contributions (Cash) | 60,000.00 | 60,000.00 | b | 60,000.00 | ||||||||||||||||
| 61700 · Computer and Internet Expenses | 13,575.00 | 13,575.00 | 13,575.00 | |||||||||||||||||
| 62400 · Depreciation Expense | Adj 2 | 0.00 | 0.00 | |||||||||||||||||
| 62500 · Dues and Subscriptions | 8,327.00 | 8,327.00 | 8,327.00 | |||||||||||||||||
| 62600 · Equipment Rental | 201,106.00 | 201,106.00 | 201,106.00 | |||||||||||||||||
| 62600 · Equipment Rental:62610 · Laser Facility Rent | 14,979.00 | 14,979.00 | 14,979.00 | |||||||||||||||||
| 63300 · Insurance Expense | 55,356.00 | 55,356.00 | 55,356.00 | |||||||||||||||||
| 63400 · Interest Expense | 63,678.00 | 63,678.00 | 63,678.00 | |||||||||||||||||
| 63600 · Laboratory Testing Fees | 121,653.00 | 121,653.00 | 121,653.00 | |||||||||||||||||
| 64300 · Meals and Entertainment | 16,725.00 | 16,725.00 | c | 16,725.00 | ||||||||||||||||
| 64400 · Medical Records and Supplies | 103,456.00 | 103,456.00 | 103,456.00 | |||||||||||||||||
| 66700 · Professional Fees | 123,945.00 | 123,945.00 | 123,945.00 | |||||||||||||||||
| 67200 · Repairs and Maintenance | 18,855.00 | 18,855.00 | 18,855.00 | |||||||||||||||||
| 67800 · Salaries and Wages | 321,580.00 | 321,580.00 | 321,580.00 | |||||||||||||||||
| 67800 · Salaries and Wages:67810 · Officer Compensation | 940,000.00 | 940,000.00 | 940,000.00 | |||||||||||||||||
| 68000 · Taxes:68010 · Payroll Taxes | 206,103.00 | 206,103.00 | 206,103.00 | |||||||||||||||||
| 68000 · Taxes:68020 · State Tax | 35,041.00 | 35,041.00 | d | 35,041.00 | ||||||||||||||||
| 68500 · Uniforms | 16,121.00 | 16,121.00 | 16,121.00 | |||||||||||||||||
| 68600 · Utilities | 30,364.00 | 30,364.00 | 30,364.00 | |||||||||||||||||
| 70200 · Interest Income | 833.00 | 833.00 | 833.00 | |||||||||||||||||
| 70222 · Tax Exempt Interest | 17,621.00 | 17,621.00 | e | 17,621.00 | ||||||||||||||||
| 70300 · Sublease Rents | 240,000.00 | 240,000.00 | 240,000.00 | |||||||||||||||||
| 71000 · Dividends | 80,000.00 | 80,000.00 | 80,000.00 | |||||||||||||||||
| 75000 · Gain on Sale of Assets | Adj 1 | 0.00 | 0.00 | |||||||||||||||||
| M-1 Accrual to Cash - Accounts Payable | 0.00 | 0.00 | f | 0.00 | ||||||||||||||||
| TOTAL | ########## | ########## | 0.00 | 0.00 | ########## | 11,102,739.48 | 0.00 | 0.00 | ########## | ########### | ||||||||||
| Book Income | 2,992,908 | Tax Income | 2,992,908 | |||||||||||||||||
| Book Adjustments | Book Income Check Figure | 553,702 | ||||||||||||||||||
| Adj 1 | Sale of fixed assets | |||||||||||||||||||
| Adj 2 | 2014 Depreciation | |||||||||||||||||||
| r | Reclass of accounts payable | |||||||||||||||||||
| Tax Adjustments | ||||||||||||||||||||
| a | Accrual to Cash Adjustment - Accounts Receivable | |||||||||||||||||||
| b | Charitable contributions carryover | |||||||||||||||||||
| c | 50% Meals and Entertainment | |||||||||||||||||||
| d | Non-deductible penalties | |||||||||||||||||||
| e | Tax Exempt interest | |||||||||||||||||||
| f | Accrual to Cash Adjustment - Accounts Payable | |||||||||||||||||||
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Financial and Managerial Accounting Using Excel for Success
Authors: James Reeve, Carl S. Warren, Jonathan Duchac
1st edition
1111535221, 1111535223, 9781285400914 , 978-1111993979
