ACCT 371 Group Research Case #3 (Chapter 12)

Adapted from the text: South-Western Federal Taxation 2019: Essentials of Taxation: Individuals and Business Entities, 22nd Edition.

Your client, Cat Palace, Inc. a C Corporation, has contacted you for some preliminary tax planning. Your client provides the projected 2019 book income statement:

		Income Statement
		Income
Gross Sales					$5,750,000
Sales returns and allowances					(200,000)
Net sales					5,550,000
Cost of goods sold					(2,300,000)
Gross profit					3,250,000
Dividends received from stock investments in less-than-20%-owned U.S. corporations					43,750
Interest income:
State bonds			$15,000
Certificates of deposit			20,000		$35,000
Total income					$3,328,750
	Expenses
Salaries Officer					$525,000
Salaries clerical and sales					725,000
Taxes (state, local, and payroll)					238,000
Repairs and maintenance					140,000
Interest expense **					216,000
Advertising					58,000
Rental expense					109,000
Depreciation *					106,000
Charitable contributions					38,000
Employee benefit programs					60,000
Premiums on officer life insurance policy					40,000
Total expenses					($2,255,000)
Net income before taxes					$1,073,750
Federal income tax					(221,734)
Net income per books					$852,016

*Depreciation for tax purposes is $136,000.

**Loan interest to purchase state bonds is $9,000

Ryan Norton is the only officer and owns 100% of Cat Palaces stock. His anticipating that Cat Palace will distribute $250,000 in cash dividends this year. Write a tax memo reconciling Cat Palaces estimated Federal income tax. In your memo, include Ryans individual tax calculation for the wages and dividends he is expecting to receive (provide assumptions that you used).