C: $3-66$ TAX FORM$/$RETURN PREPARATION PROBLEMS

Melodic Musical Sales, Inc. is located at $5500$ Fourth Avenue, City, and State $98765.$ The corporation uses the calendar year and accrual basis for both book and tax purposes. It is engaged in the sale of musical instruments with an employer identification number $($EIN$)$ of XX$-2016014.$ The company incorporated on December $31,2010,$ and began business on January $2,2011.$ Table C:$3-4$ contains balance sheet information at January $1,2014,$ and December $31,2014.$Table C:$3-5$ presents an income statement for $2014.$ These schedules are presented on a book basis. Other information follows the tables.

Estimated Tax Payments $($Form $2220)$:

The corporation deposited estimated tax payments as follows:

April $15,2014$ $$105,000$

June $15,2014210,000$

September $15,2014252,000$

December $15,2014252,000$

Total $$819,000$

Although June $15$ falls on a weekend, a deposit made on the next business day is considered made on the due date, June $15.$ Taxable income in $2013$ was $$1\mathrm{.}5$ million, and the $2013.$tax was $$510,000.$ The corporation earned its $2014$ taxable income evenly throughout the year. Therefore, it does not use the annualization or seasonal methods.

lnventory and Cost of Goods Sold $($Form $1125-$A$)$:

The corporation uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should be reflected on Form $1125-$A$.$ No other costs or expenses are allocated to cost of goods sold. Note: the corporation is exempt from the uniform capitalization $($UNICAP$)$ rules because average gross income for the previous three years was less than $$10$ million.

Line $9($a$)$ Check $($ii$)$

$($b$),($c$)$ & $($d$)$ Not applicable

$($e$)$ & $($f$)$ No

Compensation of Officers $($Form $1125-$E$)$:

$($a$)($b$)($c$)($d$)($e$)$

Mary Travis XXX$-$XX$-$XXXX $100\%50\%$ $$255,000$

John Willis XXX$-$XX$-$XXXX $100\%25\%160,000$

Chris Parker XXX$-$XX$-$XXXX $100\%25\%160,000$

Total $$585,000$

Bad Debts:

For tax purposes, the corporation uses the direct write$-$off method of deducting bad debts. For book purposes, the corporation uses an allowance for doubtful accounts. During $2014,$ the corporation charged $$36,000$ to the allowance account, such amount representing actual write$-$offs for $2014.$

Additional lnformation $($Schedule K$)$:

$1$ b Accrual $8$ Do not check box

$2$ a $4511409$ Fill in the correct amount

b Retail sales $103$

c Musical instruments $11$ Do not check box

$3$ No $12$ Not applicable

$4$ a No $13-14$ No

b Yes; omit schedule G

$5$ a No $15$ a No

b No b Not applicable

$6-7$ No $16-18$ No

Organizational Expenditures:

The corporation incurred $$11,000$ of organizational expenditures on January $2,2010.$

For book purposes, the corporation expensed the entire expenditure. For tax purposes, the corporation elected under Sec. $248$ to deduct $$5,000$ in $2011$ and amortize the remaining $$6,000$ amount over $180$ months, with a full month's amortization taken for January $2011.$ The corporation reports this amortization in Part IV of Form $4562$ and includes it in "Other Deductions" on Form $1120,$ Line $26.$

Capital Gains and Losses:

The corporation sold $100$ shares of PDQ Corp. common stock on October $7,2014,$ for $$150,000.$ The corporation acquired the stock on December $16,2013,$ for $$100,000.$ The corporation also sold $75$ shares of JSB Corp. common stock on June $17,2014,$ for $$120,000.$ The corporation acquired this stock on September $18,2012,$ for $$135,000.$ The corporation has a $$20,000$ capital loss carryover from $2013.$ These transactions were not reported to the corporation on Form $1099-$B$.$

Fixed Assets and Depreciation:

For book purposes: The corporation uses straight$-$line depreciation over the useful lives of assets as follows: Store building, $50$ years; Equipment,$15$ years $($old$)$ and ten years $($new$)$; and Trucks, five years.

The corporation takes a half$-$year's depreciation in the year of acquisition and the year of disposition and assumes no salvage value. The book financial statements in Tables C:$3-4$ and C:$3-5$ reflect these calculations.

For tax purposes: All assets are MACRS property as follows: Store building, $39-$year non$-$residential property; equipment, seven$-$year property; and trucks, five$-$year property. The corporation acquired the store building for $$1\mathrm{.}5$ million and placed it in service on January $2,2011.$ The corporation acquired two pieces of equipment for $$4000,000($Equipment $1)$ and $$800,000($Equipment $2)$ and placed them in service on July $18,2012.$ The trucks are not listed property and are not subject to the limitation on luxury automobiles. The corporation did not make the expensing election under Sec. $179$ or take bonus depreciation on any property acquired before $2014$ Accumulated tax depreciation through December $31,2013,$ on these properties is as follows:

Store building $$113,835$

Equipment $1225,080$

Equipment $2450,160$

Trucks $104,000$

On October $16,2014,$ the corporation sold for $$425,000$ Equipment $1$ that originally cost $400,000$ on January $2,2011.$ The corporation had no Sec. $1231$