Comprehensive Problem 8-1
Sherry Hopson owns a retail family clothing store. Her store is located at 4321 Heather Drive, Henderson, NV 89002. Her employer identification number is 95-1234321 and her Social Security number is 123-45-6789. Sherry keeps her books on an accrual basis. The income and expenses for the year are:
| Gross sales | | | $351,700 | | Returns and allowances | | | 4,000 | | Expenses: | | | | | Beginning inventory (at cost) | $ 84,300 | | | | Add: purchases | 100,700 | | | | Cost of goods available for sale | 185,000 | | | | Less: ending inventory (at cost) | 75,000 | | | | Cost of goods sold | | | $110,000 | | Rent | | | 23,800 | | Insurance | | | 1,500 | | Legal and accounting fees | | | 2,800 | | Payroll | | | 37,200 | | Payroll taxes | | | 3,440 | | Utilities | | | 1,850 | | Office supplies | | | 750 | | Advertising | | | 2,100 | |
Sherrys bookkeeper has provided the book-basis fixed asset roll forward to be used in computing the depreciation. The tax lives of the assets are the same as the book lives shown in the fixed asset schedule. The truck is not considered a passenger automobile for purposes of the luxury automobile limitations. No Section 179 election is made. For tax purposes, Sherry elected out of bonus depreciation in all years except 2018.
Required: Complete Sherry's Schedule C and Form 4562.
- Make realistic assumptions about any missing data.
- Enter all amounts as positive numbers.
- If an amount box does not require an entry or the answer is zero, enter "0".
- If required round any dollar amount to the nearest dollar.
Schedule of Fixed Asset Rollforward Sherry's bookkeeper has provided the following book-basis fixed asset rollforward: DEPR IN SERVICE METHOD LIFE 2/15/2016 SL 5 ASSET CASH REGISTER 2016 TOTAL ADDITIONS Hopson Retail Fixed Asset Rollforward 12/31/2018 (book basis) COST 2016 BASIS DEPR 9,800.00 1,796.67 9,800.00 1,796.67 2017 DEPR 1,960.00 1,960.00 2018 DEPR 1,950.00 1,960.00 ACCUM DEPR 5,716.67 5,716.67 NET BOOK VALUE 4,083.33 4,083.33 RETAIL FIXTURES 10/12/2017 10/12/2017 SL SL 7 7 4,500.00 3,600.00 803.57 642.86 FURNITURE 160.71 642.86 128.57514.29 289.28 1,157.15 2,249.28 3,117.15 3,696.43 2,957.14 6,653.57 10,736.90 8,100.00 1,446.43 2017 TOTAL ADDITIONS TOTAL 17,900.00 1,796.67 7,163.10 DELIVERY TRUCK DESK AND CABINETRY COMPUTER 2018 TOTAL ADDITIONS TOTAL 6/1/2018 6/1/2018 6/1/2018 SL SL SL 5 7 5 32,000.00 17,000.00 3,500.00 3,733.33 1,416.67 408.33 3,733.33 1,416.67 408.33 28,266.67 15,583.33 3,091.67 46,941.67 57,678.57 5,558.33 52,500.00 70,400.00 5,558.33 8,675.48 1,796.67 2,249.28 12,721.43 Schedule C ...... Yes No ) If "Yes," did you or will you file required Forms 1099?......... Part I Income 1 Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the "Statutory employee" box on that form was checked ....... 2 Returns and allowances ......... 3 Subtract line 2 from line 1........ Cost of goods sold (from line 42)...... 4 5 Gross profit. Subtract line 4 from line 3............. 6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions).... 7 Gross income. Add lines 5 and 6................... Part II Expenses. Enter expenses for business use of your home only on line 30. 8 18 8 Advertising ............. 9 Car and truck expenses (see instructions) 10 Commissions and fees .... 18 Office expense (see instructions).... 19 Pension and profit-sharing plans.... 20 Rent or lease (see instructions): ..... a Vehicles, machinery, and equipment 20a 11 Contract labor (see instructions) b Other business property...... 20b 21 Repairs and maintenance ......... 21 12 Depletion ........ 13 Depreciation and section 179 22 Supplies (not included in Part III) ... expense deduction (not included 13 in Part III) (see instructions) ... 14 Employee benefit programs (other than on line 19)..... 23 Taxes and licenses.... 24 Travel and meals: ... a Travel ........ 24a b Deductible meals Schedule C Page 2 Schedule C (Form 1040) 2018 Sherry Hopson 123-45-6789 Part III Cost of Goods Sold (see instructions) 33 Method(s) used to value closing inventory: a Cost b Lower of cost or market c Other (attach explanation) 34 Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If "Yes," attach explanation ....... Yes 35 Inventory at beginning of year. If different from last year's closing inventory, attach explanation .. No 35 36 Purchases less cost of items withdrawn for personal use Tor personal use................................... 37 Cost of labor. Do not include any amounts paid to yourself 38 Materials and supplies. 39 Other costs. 40 Add lines 35 through 39 ................. 41 Inventory at end of year ........... 42 Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4... Part IV Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file Form 4562. 43 When did you place your vehicle in service for business purposes? (month, day, year) 44 of the total number of miles you drove your vehicle during 2018, enter the number of miles you used your vehicle for: a Business b Commuting (see instructions) c Other 45 Was your vehicle available for personal use during off-duty hours?.. 46 Do you (or your spouse) have another vehicle available for personal use? - Yes - Yes No No Form 4562 13 Carryover of disallowed deduction to 2019. Add lines 9 and 10, less line 12 Note: Don't use Part II or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don't include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year. See instructions 15 Property subject to section 168(f)(1) election .... 16 Other depreciation (including ACRS) ..................... Part IIT MACRS Depreciation (Don't include listed property. See instructions.) Section A 17 MACRS deductions for assets placed in service in tax years beginning before 2018.... 17 C 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here ..... Section B-Assets Placed in Service During 2018 Tax Year Using the General Depreciation System (b) Month and (c) Basis for depreciation (a) Classification of (d) Recovery (9) Depreciation year placed in business/investment use (e) Convention (f) Method property period deduction service only-see instructions) 19a 3-year property b 5-year property c 7-year property d 10-year property e 15-year property Form 4562 e 15-year property f 20-year property g 25-year property h Residential rental property MM 25 yrs. 27.5 yrs. 27.5 yrs. 22 5 yrs. 39 yrs. MM MM S/L i Nonresidential real property MM Section C-Assets placed in Service During 2018 Tax Year Using the Alternative Depreciation System 20a Class life 12 yrs. S/L b 12-year c 30-year d 40-year 30 yrs. 40 yrs. MM MM S/L Part IV Summary (See instructions.) 21 21 Listed property. Enter amount from line 28... 22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (), and line 21. Enter here and on the appropriate lines of your return. Partnerships and S corporations-see instructions .......... 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs .............................. For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N Form 4562 (2018) Schedule of Fixed Asset Rollforward Sherry's bookkeeper has provided the following book-basis fixed asset rollforward: DEPR IN SERVICE METHOD LIFE 2/15/2016 SL 5 ASSET CASH REGISTER 2016 TOTAL ADDITIONS Hopson Retail Fixed Asset Rollforward 12/31/2018 (book basis) COST 2016 BASIS DEPR 9,800.00 1,796.67 9,800.00 1,796.67 2017 DEPR 1,960.00 1,960.00 2018 DEPR 1,950.00 1,960.00 ACCUM DEPR 5,716.67 5,716.67 NET BOOK VALUE 4,083.33 4,083.33 RETAIL FIXTURES 10/12/2017 10/12/2017 SL SL 7 7 4,500.00 3,600.00 803.57 642.86 FURNITURE 160.71 642.86 128.57514.29 289.28 1,157.15 2,249.28 3,117.15 3,696.43 2,957.14 6,653.57 10,736.90 8,100.00 1,446.43 2017 TOTAL ADDITIONS TOTAL 17,900.00 1,796.67 7,163.10 DELIVERY TRUCK DESK AND CABINETRY COMPUTER 2018 TOTAL ADDITIONS TOTAL 6/1/2018 6/1/2018 6/1/2018 SL SL SL 5 7 5 32,000.00 17,000.00 3,500.00 3,733.33 1,416.67 408.33 3,733.33 1,416.67 408.33 28,266.67 15,583.33 3,091.67 46,941.67 57,678.57 5,558.33 52,500.00 70,400.00 5,558.33 8,675.48 1,796.67 2,249.28 12,721.43 Schedule C ...... Yes No ) If "Yes," did you or will you file required Forms 1099?......... Part I Income 1 Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the "Statutory employee" box on that form was checked ....... 2 Returns and allowances ......... 3 Subtract line 2 from line 1........ Cost of goods sold (from line 42)...... 4 5 Gross profit. Subtract line 4 from line 3............. 6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions).... 7 Gross income. Add lines 5 and 6................... Part II Expenses. Enter expenses for business use of your home only on line 30. 8 18 8 Advertising ............. 9 Car and truck expenses (see instructions) 10 Commissions and fees .... 18 Office expense (see instructions).... 19 Pension and profit-sharing plans.... 20 Rent or lease (see instructions): ..... a Vehicles, machinery, and equipment 20a 11 Contract labor (see instructions) b Other business property...... 20b 21 Repairs and maintenance ......... 21 12 Depletion ........ 13 Depreciation and section 179 22 Supplies (not included in Part III) ... expense deduction (not included 13 in Part III) (see instructions) ... 14 Employee benefit programs (other than on line 19)..... 23 Taxes and licenses.... 24 Travel and meals: ... a Travel ........ 24a b Deductible meals Schedule C Page 2 Schedule C (Form 1040) 2018 Sherry Hopson 123-45-6789 Part III Cost of Goods Sold (see instructions) 33 Method(s) used to value closing inventory: a Cost b Lower of cost or market c Other (attach explanation) 34 Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If "Yes," attach explanation ....... Yes 35 Inventory at beginning of year. If different from last year's closing inventory, attach explanation .. No 35 36 Purchases less cost of items withdrawn for personal use Tor personal use................................... 37 Cost of labor. Do not include any amounts paid to yourself 38 Materials and supplies. 39 Other costs. 40 Add lines 35 through 39 ................. 41 Inventory at end of year ........... 42 Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4... Part IV Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file Form 4562. 43 When did you place your vehicle in service for business purposes? (month, day, year) 44 of the total number of miles you drove your vehicle during 2018, enter the number of miles you used your vehicle for: a Business b Commuting (see instructions) c Other 45 Was your vehicle available for personal use during off-duty hours?.. 46 Do you (or your spouse) have another vehicle available for personal use? - Yes - Yes No No Form 4562 13 Carryover of disallowed deduction to 2019. Add lines 9 and 10, less line 12 Note: Don't use Part II or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don't include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year. See instructions 15 Property subject to section 168(f)(1) election .... 16 Other depreciation (including ACRS) ..................... Part IIT MACRS Depreciation (Don't include listed property. See instructions.) Section A 17 MACRS deductions for assets placed in service in tax years beginning before 2018.... 17 C 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here ..... Section B-Assets Placed in Service During 2018 Tax Year Using the General Depreciation System (b) Month and (c) Basis for depreciation (a) Classification of (d) Recovery (9) Depreciation year placed in business/investment use (e) Convention (f) Method property period deduction service only-see instructions) 19a 3-year property b 5-year property c 7-year property d 10-year property e 15-year property Form 4562 e 15-year property f 20-year property g 25-year property h Residential rental property MM 25 yrs. 27.5 yrs. 27.5 yrs. 22 5 yrs. 39 yrs. MM MM S/L i Nonresidential real property MM Section C-Assets placed in Service During 2018 Tax Year Using the Alternative Depreciation System 20a Class life 12 yrs. S/L b 12-year c 30-year d 40-year 30 yrs. 40 yrs. MM MM S/L Part IV Summary (See instructions.) 21 21 Listed property. Enter amount from line 28... 22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (), and line 21. Enter here and on the appropriate lines of your return. Partnerships and S corporations-see instructions .......... 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs .............................. For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N Form 4562 (2018)
