For purposes of this activity, ignore any state tax considerations.

The Prepaid Insurance balance is for a contract whose benefit period is March $1$ of Year $2$ to June $30$ of Year $3.$ Paid on December $31$ of Year $1.$

The Prepaid Rent balance is for rent whose benefit period is from January $1$ to March $31$ of Year $2.$ Paid on December $31$ of Year $1.$

The Prepaid Maintenance balance is for a benefit that is expected to be received by January $31$ of Year $2.$ Payment was made on October $1$ of Year $1.$

Tax Depreciation is $$300,000.$

Accounts Payable was paid out by the end of January.

All payroll liabilities $($with the exception of Accrued Vacation$)$ were paid by the end of January.

Amount paid for Accrued Vacation by March $15$ of Year $2$ was $$5,000.$

Taxpayer uses the deferral method for Deferred Revenue. During Year $1,$ book recognized $$10,000$ of revenue. The remaining revenue is to be recognized $$50,000$ per year in Years $2-5.$

The $401($k$)$ payable was paid out in June of the next year.

USE THE ACCRUAL METHOD TO SOLVE THIS

Prepare a book to tax reconciliation.

Include a note next to each asset and liability account describing why or why no M adjustment is needed.

Account Description Balance

Cash $5,853,000$

Accounts Receivable $40,000$

Allowance for Doubtful Accounts $(2,000)$

Prepaid Insurance $70,000$

Prepaid Rent $50,000$

Prepaid Maintenance $90,000$

Fixed Assets $1,400,000$

Accumulated Depreciation $(200,000)$

Security Deposits $80,000$

Accounts Payable $(60,000)$

Credit Card Liability $(150,000)$

Accrued Payroll $(35,000)$

Accrued Employee W$/$H Taxes $(12,000)$

Accrued Employer Payroll Taxes $(15,000)$

$401($k$)$ Payable $(800,000)$

Deferred Compensation $(50,000)$

Accrued Vacation $(80,000)$

Deferred Revenue $(200,000)$

Retained Earnings $-$

Revenue $(10,000,000)$

Expenses $3,800,000$

Depreciation $200,000$

Meals $12,000$

Entertainment $5,000$

Penalties $4,000$

$-$