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.

Turn in TWO versions of the file. One assuming the taxpayer is an ACCRUAL method taxpayer and one assuming the taxpayer is a CASH method taxpayer.

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 $4,000$

$-$