AMERICAN PILOT INDUSTRIES, INC.

WORK PAPER PREPARATION

FOR YEAR ENDED DECEMBER 31, 2015

The attached financial statements have been provided by your client, American Pilot Industries,

Inc. As a staff accountant at Bellows and Batten, you are to prepare the work papers used for

preparation of the corporate tax return.

American Pilot Industries, Inc. (API), is a calendar year C corporation. Based on last years

file, you note the following:

1. API has a profit sharing plan. After a call to the pension company, you learn the amount

of the retirement plan contribution for 2015 is $65,500. The pension is deductible in

2015 but will be paid in 2016. This will be an adjustment to the books.

2. Depreciation expense for 2015 is $12,450. API keeps the books on a tax basis so this

will be an adjustment to the book balances.

3. As you know, meals and entertainment are only 50% deductible.

4. Officers life insurance is not deductible.

5. Penalties are not deductible.

6. Federal income taxes are not deductible.

7. California income taxes are not deductible for California.

Begin by entering the balance sheet and profit and loss amounts in the Unadjusted per Books

columns. Make sure everything balances before making any adjustments.

Use the Adjusting Journal Entries tab for all adjustments. These adjustments are provided to

API so they can record them in the accounting system.

Schedule M items are differences between book and tax. These items are recorded on the

Schedule M-1 tab.

The spreadsheet template is not automated. For example, when you make an entry on the

journal entry tab, you have to post it to the balance sheet or profit and loss statement. The net

book income does flow to the balance sheet page so dont overwrite that formula.

When you are complete the books should be in balance, the journal entries should all be

posted, and the Schedule M-1 tab should reconcile the adjusted book income to taxable income

for federal and state.

AMERICAN PILOT INDUSTRIES, INC. BALANCE SHEET AT DECEMBER 31, 2015

Assets

Cash $ 87,544

Accounts Receivable 248,674

Inventory 187,786

Prepaid Expenses 16,244

Total Current Assets 540,248

Fixed Assets 169,952

Accumulated Depreciation (84,320)

85,632

Investment in Baker LLC 144,232

Total Assets $ 770,112

Liabilities & Equity

Accounts Payable $ 48,334

Accrued Expense 24,111

Payroll Tax Payable 3,855

Line of Credit 122,401

Total Current Liabilities 198,701

Common Stock 5,000

Retained Earnings 566,411

Total Liabiities & Equity $ 770,112

AMERICAN PILOT INDUSTRIES, INC. STATEMENT OF INCOME & RETAINED EARNINGS YEAR ENDED DECEMBER 31, 2015

Revenue

Sales $ 2,156,880

Cost of Sales

Purchases 1,020,441

Shop Supplies 22,877

Total Cost of Sales 1,043,318

Gross Margin 1,113,562

Administrative Costs

Advertising 12,412

Consulting 10,850

Dues & Subscriptions 984

Freight 1,650

Insurance 48,002

License & Fees 1,899

Meals & Entertainment 2,954

Misc Expense 488

Office Supplies 1,688

Officer's Compensation 285,000

Officer's Life Insurance 4,246

Payroll Taxes 166

Penalties 185

Postage & Printing 2,400

Professional Services 4,577

Property Tax 3,487

Rent 95,425

Salary & Wages 402,441

Income Tax Expense - Federal 15,540

Income Tax Expense - California 10,400

Travel 8,755

Total Administrative Costs 913,549

Net Income $ 200,013

Retained Earnings - Jan. 1, 2014 366,398

Retained Earnings - Dec. 31, 2015 $ 566,411