C-Corporation Tax Return.

The Avian Company is a wholesaler of water coolers. It was formed 10/1/1996 and has always had a fiscal year ending December 31. It uses accrual accounting to maintain its books and file its tax returns. The company's address is 620 River Drive, Philadelphia PA. The corporation has a single class of common stock outstanding. Obtain the company's audited trial balance prepared for its financial statements in the accompanying excel file. Your assignment is to calculate the corporation's income tax liability AND book income tax expense and prepare the corporation's financial statements and its income tax return, Form 1120. The trial balance is complete for financial statement purposes EXCEPT for the adjusting journal entry to record income tax expense and tax liability. Note well: the trial balance has been prepared for financial statement purposes, not federal tax purposes. Some items will be different for the tax return.

Information:

Analysis of the Allowance for Doubtful Accounts shows:

Beginning of year balance $45,496

Provision for the year 19,567

Write-offs in the year (22,957)

End of year balance on 12/31 $42,106

All charitable contributions were made in cash to qualified organizations.

Four estimated federal income tax payments of $60,000 were made timely.

Entertainment expenses consist only of reimbursements for business meals & entertainment incurred by the company's officers & sales force.

$2,560 of the interest income was earned on investments in tax-exempt state bonds. The rest of the interest income was earned from investments in taxable corporate bonds.Dividend income is from shares of Microsoft Corporation.

The company owns much less that 1% of the outstanding shares. The company owns several insurance policies on the lives of its officers and key employees. The company is the beneficiary of these policies. Premiums on these policies cost $24,670 this year.

MACRS depreciation for tax purposes is $239,000.

The company sold some shares of stock this year and realized a gain of $30,890.The shares were purchased in 2010. There were no other asset sales in the current year.

All appropriate financial reporting adjustments have been made to the trial balance except for the provision for income taxes. You will need to calculate and record an adjusting journal entry for the book income tax expense to complete the book basis trial balance in order to produce the GAAP basis financial statements.

Requirements:

Part 1. A. Write the adjusting journal entry [in proper journal entry form] for book tax expense & tax liability AND prepare financial statements, specifically, a [book basis] balance sheet, income statement and retained earnings statement. Your tax expense adjusting entry should include a debit to book tax expense, a credit to tax prepayments and a debit or credit to deferred tax and a credit to tax liability (if any). Note: as per (3) above, the company has made timely estimated tax payments. Do you see these on the companys trial balance? Part 1. B. Prepare a schedule (as we have done in class) showing the book to tax differences. Your schedule that you hand in should begin with book Net Income (after tax) and end with Taxable Income.

Avian Company December 31, 2016 Trial Balance Book trial balance

	Book trial balance
	Debit	Credit
Assets:
Cash	132,340
Accounts Receivable	1,692,106
Allowance for Bad Debts		42,106
Estimated U.S. Income Tax Prepayments	240,000
Inventories	497,745
Buildings & Equipment	2,629,242
Accum. Depreciation		853,242
Investments - long term	255,494
Liabilities & Equity:
Accounts Payable & Accruals		762,872
Common Stock		3,000,000
Retained Earnings (beginning of year)		160,041
Dividends Declared and Paid	130,000
Revenue:
Sales		8,107,862
Sales Returns & Allowances	203,962
Interest Income		23,720
Dividend Income		6,200
Gain on sale of assets		30,890
Cost of Goods Sold
Beginning Inventory	510,422
Purchases (net of R & A)	5,137,473
Ending Inventory		497,745
Other Costs & Expenses
Officers Salaries	500,000
Sales Salaries	403,919
Administrative Salaries and Wages	133,081
Repairs & Maintenance	41,030
Bad Debts Expense	19,567
Payroll Taxes	83,728
Property & Realty Taxes	38,154
Charitable Contributions	55,500
Depreciation	177,000
Advertising Expense	226,000
Pension Plan Expense	36,650
Employee Group Health Insurance	26,432
Entertainment & Meals Expense	24,900
Officer's Key Person Life Insurance	24,670
Other Expenses	265,263
Federal income tax expense (books)
Totals	13,484,678	13,484,678