Calculate taxable income for AST Records. You MUST show your work for every calculation (see the final requirement) that comes into calculating the taxable income. Note that the book income on the trial balance is NOT equal to taxable income so there is a fair amount of work you must do to complete this requirement. You will start with book net income (you came up with that in PART I) and reconcile it to taxable income.

Trial Baln.

	CASH		2,352,750
	INVESTMENTS, AT FMV		3,685,950
	ACCOUNTS RECEIVABLE		325,000
	ALLOWANCE FOR DOUBTFUL ACCOUNTS		(12,600)
	INVENTORY		576,550
	INVENTORY RESERVE		(24,000)
	COMPUTERS - CONTRIBUTED		36,000
	COMPUTERS - PURCHASED		175,000
	MACHINERY - CONTRIBUTED		-
	MACHINERY - PURCHASED		8,000,000
	SOFTWARE - PURCHASED		250,000
	OTHER EQUIPMENT - PURCHASED		1,000,000
	ACCUMULATED DEPRECIATION - COMPUTERS CONTRIBUTED		(23,000)
	ACCUMULATED DEPRECIATION - COMPUTERS PURCHASED		(26,736)
	ACCUMULATED DEPRECIATION - MACHINERY CONTRIBUTED		-
	ACCUMULATED DEPRECIATION - MACHINERY PURCHASED		(428,571)
	ACCUMULATED DEPRECIATION - OTHER EQUIPMENT PURCHASED		(38,194)
	ACCUMULATED DEPRECIATION - SOFTWARE PURCHASED		(75,000)
	INTANGIBLES		-
	EQUITY INVESTMENT IN DAVECO		495,000
	WAGES PAYABLE - EMPLOYEES		(54,000)
	WAGES PAYABLE - SIMON		(6,000)
	WAGES PAYABLE - THEODORE		(4,000)
	WAGES PAYABLE - ALVIN		(5,000)
	WITHHOLDING TAXES PAYABLE		(12,500)
	ACCRUED PAYROLL TAXES		(7,580)
	ACCRUED VACATION PAYABLE		(75,600)
	ACCRUED WARRANTY		(73,459)
	ALLOWANCE FOR SALES RETURNS		(12,450)
	ACCRUED RENTAL		(9,000)
	ACCOUNTS PAYABLE		(99,500)
	LONG-TERM DEBT		(900,000)
	DEFERRED REVENUE		(55,600)
	FEDERAL INCOME TAXES PAYABLE		(1,603,788)
	NOTES PAYABLE		(9,000,000)
	OWNERS CONTRIBUTIONS		(1,685,257)
	DISTRIBUTIONS TO OWNERS		1,000,000
	OTHER COMPREHENSIVE INCOME - INVESTMENTS		(685,950)
	RETAINED EARNINGS		-
	GROSS SALES		(13,450,650)
	SALES RETURNS		95,460
	INCOME FROM EQUITY METHOD INVESTMENT		(90,000)
	COST OF GOODS SOLD		6,500,950
	(GAIN)/LOSS ON SALE OF FIXED ASSETS		115,476
	(GAIN)/LOSS ON SALE OF INVESTMENTS		(70,000)
	INTEREST INCOME		(145,000)
	DIVIDEND INCOME FROM INVESTMENTS		(198,645)
	INTEREST EXPENSE		336,000
	MEALS & ENTERTAINMENT		50,000
	PENALTY EXPENSE		3,000
	PROPERTY TAX EXPENSE		112,000
	PAYROLL TAX EXPENSE		98,000
	REPAIR EXPENSE		47,500
	ADVERTISING EXPENSE		190,000
	RENT EXPENSE		99,000
	OFFICER LIFE INSURANCE PREMIUM EXPENSE		3,250
	BAD DEBT EXPENSE		15,600
	ACCOUNTING FEES		17,500
	LEGAL FEES		3,500
	FEES PAID TO ALVIN		75,000
	WARRANTY EXPENSE		73,459
	INSURANCE EXPENSE		95,465
	DEPRECIATION EXPENSE		906,883
	VACATION EXPENSE		105,000
	WAGES EXPENSE		429,000
	FEDERAL TAX EXPENSE		1,603,788
			-

Balance Stmt.

Current assets:
	Cash		2,352,750
	Investments, at FMV		3,685,950
	Accounts receivable		325,000
	Allowance for doubtful accounts		(12,600)
	Inventory		576,550
	Inventory reserve		(24,000)
	Total current assets		$6,903,650
Long-term assets:
	Computers - contributed		36,000
	Computers - purchased		175,000
	Machinery - contributed		-
	Machinery - purchased		8,000,000
	Software - purchased		250,000
	Other equipment - purchased		1,000,000
	Accumulated depreciation - computers contributed		(23,000)
	Accumulated depreciation - computers purchased		(26,736)
	Accumulated depreciation - machinery contributed		-
	Accumulated depreciation - machinery purchased		(428,571)
	Accumulated depreciation - other equipment purchased		(38,194)
	Accumulated depreciation - software purchased		(75,000)
	Net fixed assets		$8,869,498
	Equity investment in Daveco		495,000
	Total long-term assets		$9,364,498
	Total assets		$16,268,148
Current liabilities:
	Allowance for sales returns		(12,450)
	Wages payable - employees		(54,000)
	Wages payable - Simon		(6,000)
	Wages payable - Theodore		(4,000)
	Wages payable - Alvin		(5,000)
	Withholding taxes payable		(12,500)
	Accrued payroll taxes		(7,580)
	Accrued vacation payable		(75,600)
	Accrued warranty		(73,459)
	Accrued rental		(9,000)
	Accounts payable		(99,500)
	Deferred revenue		(55,600)
	Federal income taxes payable		(1,603,788)
	Total current liabilities		$(2,018,477)
Long-term liabilities:
	Note payable		(9,000,000)
	Long-term debt		(900,000)
	Total liabilities		$(11,918,477)
Shareholders' Equity:
	Common stock		(1,685,257)
	Other comprehensive income		(685,950)
	Retained earnings		(1,978,464)
	Total shareholders' equity		(4,349,671)
	Total liabilities and shareholders' equity		$(16,268,148)

Income Stmt.

Gross revenue				$13,450,650
Less: Sales returns		$(95,460)
Cost of goods sold		(6,500,950)
				(6,596,410)
Gross margin				$6,854,240
Operating expenses:
Meals & entertainment		(50,000)
Penalty expense		(3,000)
Property tax expenses		(112,000)
Payroll tax expense		(98,000)
Repair expense		(47,500)
Advertising expense		(190,000)
Rent expense		(99,000)
Officer life insurance premium expense		(3,250)
Bad debt expense		(15,600)
Accounting fees		(17,500)
Legal fees		(3,500)
Fees paid to Alvin		(75,000)
Warranty expense		(73,459)
Insurance expense		(95,465)
Depreciation expense		(906,883)
Vacation expense		(105,000)
Wages expense		(429,000)
Total operating expenses				(2,324,157)
Income from operations				$4,530,083
Non-operating income (expenses):
(Gain)/loss on sale of fixed assets		115,476
(Gain)/loss on sale of investments		(70,000)
Interest income		(145,000)
Dividend income from investments		(198,645)
Interest expense		336,000
Income from equity method investment		(90,000)
Net non-operating income (expense)				(52,169)
Income before taxes				$4,582,252
Less: Tax expense				(1,603,788)
Net income				$2,978,464