C Corporation Tax Return Final

Federal Taxation ll

UMPI, Inc. is a calendar$-$year corporation that began business on January $1,2017.$ For $2018,$ it reported the following information in its current year audited income statement. Notes with important tax information are provided below.

Required:

Identify the book$-$to$-$tax adjustments for UMPI

Reconcile book income to taxable income on worksheet $($below$).$

Complete UMPI$$s Schedule M$-1.$

Complete UMPI$$s Form $1120,$ page $1$ line $1$a to line $31.$

Notes:

UMPI owns $10\%$ of the outstanding Home Corp. $($HC$)$ stock. Home Corp. reported $$2,000,000$ of income for the year. UMPI accounted for its investment in HC under the equity method and it recorded its pro rata share of HC$$s earnings for the year. HC also distributed a $$100,000$ dividend to UMPI.

Of the $$20,000$ interest income, $$5,000$ was from Ford Motor, $$7,000$ was from a Toyota, $$6,000$ was from a Town of Presque Isle municipal bond, and the remaining $$2,000$ was from an investment in a CD $($certificate of deposit$).$

Life insurance proceeds from death of the CFO.

This includes total officer compensation of $$3,500,000.$ The CEO was paid $$1,250,000$ for salary in $2018($no one officer received more than $$1,000,000$ compensation$).$

$$2,000$ is the portion of interest paid on a loan taken out to obtain a tax exempt municipal bond from the City of Presque Isle.

UMPI actually wrote off $$48,000$ of its accounts receivable as uncollectible.

Tax depreciation was $$700,000.$

In the current year, UMPI made $$23,500$ in actual payments on warranties it provided to customers.

UMPI made $$750,000$ of cash contributions to qualified charities during the year.

On January $1$ of this year UMPI acquired the assets of another business. In the process it acquired $$200,000$ of goodwill. At the end of the year, UMPI wrote off $$10,000$ of the goodwill as impaired.

UMPI expensed all of its organizational expenditures for book purposes. It expensed the maximum amount of organizational expenditures allowed for tax purposes.

The other expenses do not contain any items with book$-$tax differences.

UMPI received rental income payments in $2018$ that relates to $2019.$ They have not earned the amount as of year$-$end and was not recorded in the books. The total amount received was $$21,500.$

Book to Tax Worksheet:

UMPI corp.

Book to Tax

Income statement

Book

Adjustments

Taxable

For current year

Income

$($Dr$.)$

Cr$.$

Income

Revenue from sales

$$47,000,000$

Cost of Goods Sold

$(34,000,000)$

Gross profit

$xxxxxxxxx

Other income:

Income from investment in HC stock

$200,0001$

Interest income

$20,0002$

Capital gains $($losses$)$

$(4,000)$

Life insurance proceeds

$315,0003$

Miscellaneous income

$50,000$

Gross Income

Expenses:

Compensation

$(7,500,000)4$

Interest expense

$(5,000)5$

Advertising

$(1,350,000)$

Repairs and Maintenance

$(75,000)$

Rent

$(22,000)$

Bad Debt expense

$(51,000)6$

Depreciation

$(1,000,000)7$

Warranty expenses

$(90,000)8$

Charitable donations

$(750,000)9$

Life insurance premiums

Meals

$(45,000)$

$(12,500)$

Goodwill impairment

$(10,000)10$

Organizational expenditures

$(59,000)11$

Other expenses

$(140,000)12$

Total expenses

$($$$11,390,000)$

Income before taxes

$XXXXXXX

Provision for income taxes

$(520,000)$

Net Income after taxes

$XXXXXX