ACNT 1347

Form 1120 Practice Tax Return

Facts in 2016:

• ABC Inc. 123 Oak Dr Houston TX 77002
• EIN-74-111111
• Date Incorporated 1/1/2000
• Total Assets $5,000,000
• ABC Inc.?s Net Income per books is $440,000
• Gross Receipts $1,000,000
• Cost of Goods Sold $400,000 (assume no beginning and ending inventory and purchases are $400,000)
• ABC Inc. uses the lower of cost or market method for valuing inventory and also uses the FIFO method for determining the cost of goods sold. Cash method of accounting is used for all other expenses other than inventory.
• Business Activity Code is 99999 and business activity is retail sales of clothing.
• Compensation paid to sole shareholder, John Doe. SSN-222-22-2222 was $200,000
• Salaries and wages paid to employees were $50,000
• Office Rent paid for corporate headquarters was $10,000
• ABC Inc. contributed a computer used in its business since 1/1/2008 with a basis of $20,000 and a fair market value of $60,000 to the Salvation Army to be used in their business office.
• Television advertising to promote the company products were $40,000
• ABC Inc. elected to carry over $1,250 of overpaid taxes from 2015 to 2016
• ABC Inc. paid $20,000 each of 4 quarters for estimated tax payments in 2016
• ABC Inc. owns 10% of Better Inc., a domestic corporation, and received dividends in the amount of $100,000 in 2016
• ABC Inc. owns 40% of Best Inc., a domestic corporation, and received dividends in the amount of $100,000 in 2016
• ABC Inc. is a calendar year taxpayer and not affiliated with any other entity.

John Doe has engaged you to prepare the 2016 Form 1120 (pages 1, 2, 3 and Page 5 (M-1 only) for the ABC Inc.

You will not be preparing Form 1125-A, Cost of Goods Sold; Form 1125-E, Compensation of Officers; or Form 1120 Schedule G, Information on Certain Persons Owning the Corporation's Voting Stock .

Disregard any estimated tax penalties.

Be sure to sign the return as the preparer. Do not put your SSN # on the Form 1120.

Form 1120 - Additional Information Instructions - Email your tax return to me by the due date. You only need to send me the tax return. Please do not send me any work papers. The recommended steps to preparing the C Corporation tax return are as follows: Step 1 - Prepare a book income statement. You might want to use Excel. The book income should be $440,000. Do not include any federal estimated tax payments in your book income. Step 2 - Adjust the book income for any temporary and permanent differences (book to tax adjustments). Hint - This tax return has one book to tax adjustment. Step 3 - Record the adjusted taxable revenue and expenses on page 1 of tax form 1120. Listed below is additional information to assist you in the preparation of the return. Tax Form 1120 Page 1 Please read the instructions for calculating the gross profit. Gross profit equals the total revenue on line 1c minus the cost of goods sold on line 2. Page 1 The full amount of the dividends received is record on line 4. The dividend receive deduction is calculated on page 2 and recorded on page 1 line 29b and 29c. The dividend received deduction on line 29c reduces the taxable income on line30. Page 1 Charitable contributions are limited to 10% of the charitable contribution modified taxable income. Please see example 16-12 in your textbook for the formula. Hint - The charitable contribution is limited. Page 2 The dividends received are recorded on lines 1 and 2 in column (a). Multiply the dividends by the percentage in column (b) and record the amount in column (c). The total in column (c) is the dividend received deduction that is record on lines 29b and 29c on page 1 of the tax form 1120. Page 3 Calculate the current tax in Part I. Remember to include the estimated tax payments and the overpayment from the prior year Part II. Read the instructions for transferring these amounts to page 1 of the tax form 1120. Page 5 Schedule M-1 You only need to complete the M-1 on page 5. The purpose of this schedule is to reconcile the book income to the tax income. Use your income statement that you prepared in Steps 1 and 2 to complete this schedule. Hint - There is one book to tax adjustment. Line 1 is your book income. Line 10 on the Schedule M-1 should be the same as line 28 on page 1