I am doing corporate tax .I hope I am doing pretty good .but I am not certain some issues

Instructions 1. Prepare a 2015 Form 1120 - U.S. Corporation Income Tax Return - for Jorgenson Jewelry Corporation based on the information provided. 2. Prepare the return as if you were preparing it for an actual client. All necessary forms and schedules should be attached to the return, and properly and neatly completed. Form 1120 (Pages 1 - 5), Schedule D, Form 4562, Form 4797, and Form 8903 are among the forms that are required. The details of all required information (e.g., other deductions) must be provided in attached schedules. 3. Attach a statement showing the details of your calculation of federal income tax expense per books and the ending balance in the deferred tax asset and deferred tax liability accounts to the back of your return. 4. Attach a statement showing the details of your calculation of tax depreciation on each asset (see item 4) to the back of your return. 5. This project is due on or before the beginning of class on Monday, February 29, 2016. No late returns will be accepted. There are no exceptions. Information On January 1, 2011 Jerry Jorgenson formed Jorgenson Jewelry Corporation (Jorgenson Jewelry) to manufacture and sell jewelry and accessories at retail. Pertinent information regarding Jorgenson Jewelry summarized as follows: 1. Jorgenson Jewelry Corporation's business address is 262 Shiny Street, Nashville, TN 37203. Its employer identification number is 41-2755278. 2. Jorgenson Jewelry Corporation was incorporated on January 1, 2011. The corporation incurred and paid $14,000 of organization costs on January 1, 2011. These organization costs were expensed in 2011 for financial accounting purposes. For tax purposes, Jorgenson Jewelry properly elected to expense the maximum amount of organization expenses in 2011, and is amortizing the remaining expenses as required. 3. Jerry owns 100 percent of the outstanding common stock; no other class of stock is authorized. Jerry is president of the company. Jerry received a salary of $160,000 in 2015. His Social Security number is 468-53-2853. 4. Jorgenson Jewelry Corporation placed the following assets in service on the date indicated: Page 1 of 5 A. Land and Building: Jorgenson Jewelry purchased land and a building for $400,000 on January 1, 2011. The land and building were placed in service on January 1, 2011. $340,000 of the purchase price was allocated to the building, and $60,000 to the land. Jorgenson Jewelry depreciates the building on a straight-line basis over 40 years for financial accounting purposes. B. Equipment 1: Jorgenson Jewelry purchased equipment (7-year MACRS property) on January 1, 2014 for $80,000. The equipment was placed in service on January 1, 2014. Jorgenson Jewelry depreciates the equipment on a straight-line basis over 10 years for financial accounting purposes. Jorgenson Jewelry uses regular MACRS depreciation for tax purposes. It did not make a section 179 election and elected out of bonus depreciation. Jorgenson Jewelry sold this equipment for $84,000 on December 31, 2015. C. Equipment 2: Jorgenson Jewelry purchased equipment (7-year MACRS property) for $60,000 on January 1, 2015. The equipment was placed in service on January 1, 2015. Jorgenson Jewelry depreciates the equipment on a straight-line basis over 10 years for financial accounting purposes. For tax purposes, Jorgenson Jewelry elected to expense the entire cost of the equipment under section 179. 5. Jorgenson Jewelry uses the accrual method of accounting and reports on a calendar year basis. Inventories are determined using the cost method. The rules of Section 263A do not apply to Jorgenson Jewelry. There is no cost of labor, additional section 263A costs, or other costs included in cost of goods sold. Jorgenson Jewelry's 2015 purchases were $831,800. 6. Jorgenson Jewelry uses the allowance method of accounting for bad debts for financial accounting purposes. It began 2015 with a $4,000 credit balance in the allowance account. During 2015, it wrote off a $600 accounts receivable as uncollectible. On the basis of Jorgenson Jewelry Corporation's year-end accounts receivable, the independent auditors determined that a $700 addition to the bad debt allowance was necessary. As a result, the year-end balance in the allowance is $4,100. 7. Jorgenson Jewelry qualifies for the domestic production activities deduction (DPAD). Assume that all of the corporation's income and expense items are included in qualified production activities income, and all wages are related to qualified production activities. As a result, taxable income before the DPAD is equal to qualified production activities income. 8. On October 1, 2015, Jorgenson Jewelry Corporation declared and paid a $300,000 cash dividend to its shareholder, Jerry Jorgenson. Page 2 of 5 9. Net income per books (before federal income tax) is $586,800. Net income per books (before the final income tax accrual) is $426,800. Jorgenson Jewelry made estimated tax payments of $160,000 ($40,000 per quarter) to the IRS for the calendar year 2015. This amount is sufficient to avoid any potential penalty for underpayment of estimated tax. Jorgenson Jewelry wants any overpayment of federal taxes (if there is any) to be credited to 2016 estimated tax. 10. In calculating the year-end retained earnings balance in the preliminary balance sheet, Jorgenson Jewelry Corporation expensed the $160,000 of federal estimated tax payments (i.e., the amount paid in estimated taxes during the year). In other words, the balance in retained earnings reflects income tax expense on a cash basis. You are required to do the year-end income tax accrual and properly reflect accrual basis net income and income tax expense per books on Schedule M-1. You are also required to finalize the balance sheet. In addition to reflecting the correct balance in retained earnings, your balance sheet should also properly reflect any federal income tax refund or payable and any deferred tax asset or liability. Attach a statement detailing your calculation of federal income tax expense per books and the ending balance in deferred tax asset and deferred tax liability (see item 11). 11. The beginning balance in the deferred tax asset account results from the difference in the book-tax treatment of organization expenses and bad debts (see items 2 and 6). The beginning balance in the deferred tax liability account results from the difference in the book-tax treatment of depreciation. These three items are the only temporary book-tax differences at the beginning of 2015 (there are other temporary differences that arise in 2015). The preliminary balance sheet does not contain any adjustments to the deferred tax asset or deferred tax liability accounts. You are required to calculate the ending balance in the deferred tax asset and deferred tax liability accounts. Attach a statement detailing your calculation of the deferred tax asset and deferred tax liability to the back of your return. Page 3 of 5 Selected portions of Jorgenson Jewelry's profit and loss statement for 2015 reflect the following debits and credits. Account Gross sales Sales returns and allowances Purchases Dividends received from stock investments A company Jorgenson Jewelry owns 5% of the stock in. Interest income from state of Tennessee bonds Interest income from certificates of deposits Interest income from U.S. Treasury bonds Gain on sale of equipment 1 (see information item 4B) Gain on sale of stock (0n 2/14/2015 Jorgenson Jewelry sold 10 shares of ABC Corporation stock for $8,200. After reduction for a $200 broker commission, Jorgenson Jewelry received $8,000. The stock was purchased on 6/1/2011 for $5,000). Cost basis information was reported to the IRS on Form 1099-B. Loss on sale of stock (On 10/31/2015 Jorgenson Jewelry sold 100 shares of XYZ Corporation stock for $4,200. After reduction for a $200 broker commission, Jorgenson Jewelry received $4,000. The stock was purchased on 1/20/2015 for $13,000). Cost basis information was reported to the IRS on Form 1099-B. Premiums paid on term life insurance on the life of Jerry; Jorgenson Jewelry is the designated beneficiary. Salaries-officers (Paid to Jerry Jorgenson) Salaries-clerical and sales Employee benefits Bad debt expense Taxes (state, local, and payroll) Repairs Supplies Charitable contribution (On 5/16/2015 Jorgenson Jewelry contributed $80,000 in cash to the Red Cross). Interest expense on loan used to purchase state of Tennessee bonds Interest expense on business loans Fine paid to state of Tennessee for deceptive advertising Advertising Utilities Meals and Entertainment Expense Office Expenses Property and Casualty Insurance Accounting Fees Miscellaneous Expenses Equipment Rent Expense Depreciation Debit Credit $1,988,540 $ 6,200 831,800 80,000 8,000 3,400 4,800 20,000 3,000 9,000 5,000 160,000 200,000 29,000 700 32,400 11,000 12,100 80,000 2,300 25,800 1,500 24,900 28,720 9,000 12,500 3,800 7,620 2,000 6,200 22,500 Page 4 of 5 A comparative preliminary balance sheet for Jorgenson Jewelry reveals the following information: Assets Cash Trade notes and accounts receivable Allowance for Doubtful Accounts Income tax refund receivable Inventories Deferred Tax Asset Federal bonds State of Tennessee bonds Certificates of deposit Stock Investment Buildings and other depreciable assets Accumulated depreciation Land Total assets Liabilities and Equity Accounts payable Income tax payable Deferred tax liability Mortgages (Long-Term) Capital Stock Retained earnings Total liabilities and equity January 1, 2015 December 31, 2015 $90,586 98,040 (4,000) $92,826 112,800 (4,100) 407,200 3,604 52,000 114,000 90,000 150,000 420,000 (42,000) 60,000 $1,439,430 410,300 3,604 52,000 114,000 90,000 132,000 400,000 (48,500) 60,000 $1,414,930 January 1, 2015 December 31, 2015 $130,479 $70,168 1,344 252,900 125,000 929,707 $1,439,430 1,344 161,911 125,000 1,049,672 $1,414,930 Page 5 of 5 Instructions 1. Prepare a 2015 Form 1120 - U.S. Corporation Income Tax Return - for Sharp Instrument Corporation based on the information provided. 2. Prepare the return as if you were preparing it for an actual client. All necessary forms and schedules should be attached to the return, and properly and neatly completed. Form 1120 (Pages 1 - 5), Schedule D, Form 4562, Form 4797, and Form 8903 are among the forms that are required. The details of all required information (e.g., other deductions) must be provided in attached schedules. 3. Attach a statement showing the details of your calculation of federal income tax expense per books and the ending balance in the deferred tax asset and deferred tax liability accounts to the back of your return. 4. Attach a statement showing the details of your calculation of tax depreciation on each asset (see item 4) to the back of your return. Information On January 1, 2011 Jerry Jorgenson formed Jorgenson Jewelry Corporation (Jorgenson Jewelry) to manufacture and sell jewelry and accessories at retail. Pertinent information regarding Jorgenson Jewelry summarized as follows: 1. Sharp Instrument Corporation business address is TN 37203. Its employer 528 Tune Street, Nashville, TN 37203identification number is 41-2755278. 2. Jorgenson Jewelry Corporation was incorporated on January 1, 2011. The corporation incurred and paid $14,000 of organization costs on January 1, 2011. These organization costs were expensed in 2011 for financial accounting purposes. For tax purposes, Jorgenson Jewelry properly elected to expense the maximum amount of organization expenses in 2011, and is amortizing the remaining expenses as required. 3. Jerry owns 100 percent of the outstanding common stock; no other class of stock is authorized. Jerry is president of the company. Jerry received a salary of $160,000 in 2015. His Social Security number is 468-53-2853. 4. Sharp Instrument Corporation placed the following assets in service on the date indicated: Page 1 of 5 A. Land and Building: Sharp Instrument Corporation purchased land and a building for $400,000 on January 1, 2011. The land and building were placed in service on January 1, 2011. $340,000 of the purchase price was allocated to the building, and $60,000 to the land. Sharp Instrument Corporation depreciates the building on a straight-line basis over 40 years for financial accounting purposes. B. Equipment 1: Sharp Instrument Corporation purchased equipment (7-year MACRS property) on January 1, 2014 for $80,000. The equipment was placed in service on January 1, 2014. Sharp Instrument Corporation depreciates the equipment on a straight-line basis over 10 years for financial accounting purposes. Jorgenson Jewelry uses regular MACRS depreciation for tax purposes. It did not make a section 179 election and elected out of bonus depreciation. Jorgenson Jewelry sold this equipment for $84,000 on December 31, 2015. C. Equipment 2: Sharp Instrument Corporation purchased equipment (7-year MACRS property) for $60,000 on January 1, 2015. The equipment was placed in service on January 1, 2015. Sharp Instrument Corporation depreciates the equipment on a straight-line basis over 10 years for financial accounting purposes. For tax purposes, Jorgenson Jewelry elected to expense the entire cost of the equipment under section 179. 5. Sharp Instrument Corporation Uses the accrual method of accounting and reports on a calendar year basis. Inventories are determined using the cost method. The rules of Section 263A do not apply to Sharp Instrument Corporation. There is no cost of labor, additional section 263A costs, or other costs included in cost of goods sold. Jorgenson Jewelry's 2015 purchases were $831,800. 6. Jorgenson Jewelry uses the allowance method of accounting for bad debts for financial accounting purposes. It began 2015 with a $4,000 credit balance in the allowance account. During 2015, it wrote off a $600 accounts receivable as uncollectible. On the basis of Jorgenson Jewelry Corporation's year-end accounts receivable, the independent auditors determined that a $700 addition to the bad debt allowance was necessary. As a result, the year-end balance in the allowance is $4,100. 7. Jorgenson Jewelry qualifies for the domestic production activities deduction (DPAD). Assume that all of the corporation's income and expense items are included in qualified production activities income, and all wages are related to qualified production activities. As a result, taxable income before the DPAD is equal to qualified production activities income. 8. On October 1, 2015, Jorgenson Jewelry Corporation declared and paid a $300,000 cash dividend to its shareholder, Jerry Jorgenson. Page 2 of 5 9. Net income per books (before federal income tax) is $586,800. Net income per books (before the final income tax accrual) is $426,800. Jorgenson Jewelry made estimated tax payments of $160,000 ($40,000 per quarter) to the IRS for the calendar year 2015. This amount is sufficient to avoid any potential penalty for underpayment of estimated tax. Jorgenson Jewelry wants any overpayment of federal taxes (if there is any) to be credited to 2016 estimated tax. 10. In calculating the year-end retained earnings balance in the preliminary balance sheet, Jorgenson Jewelry Corporation expensed the $160,000 of federal estimated tax payments (i.e., the amount paid in estimated taxes during the year). In other words, the balance in retained earnings reflects income tax expense on a cash basis. You are required to do the year-end income tax accrual and properly reflect accrual basis net income and income tax expense per books on Schedule M-1. You are also required to finalize the balance sheet. In addition to reflecting the correct balance in retained earnings, your balance sheet should also properly reflect any federal income tax refund or payable and any deferred tax asset or liability. Attach a statement detailing your calculation of federal income tax expense per books and the ending balance in deferred tax asset and deferred tax liability (see item 11). 11. The beginning balance in the deferred tax asset account results from the difference in the book-tax treatment of organization expenses and bad debts (see items 2 and 6). The beginning balance in the deferred tax liability account results from the difference in the book-tax treatment of depreciation. These three items are the only temporary book-tax differences at the beginning of 2015 (there are other temporary differences that arise in 2015). The preliminary balance sheet does not contain any adjustments to the deferred tax asset or deferred tax liability accounts. You are required to calculate the ending balance in the deferred tax asset and deferred tax liability accounts. Attach a statement detailing your calculation of the deferred tax asset and deferred tax liability to the back of your return. Page 3 of 5 Selected portions of Jorgenson Jewelry's profit and loss statement for 2015 reflect the following debits and credits. Account Gross sales Sales returns and allowances Purchases Dividends received from stock investments A company Jorgenson Jewelry owns 5% of the stock in. Interest income from state of Tennessee bonds Interest income from certificates of deposits Interest income from U.S. Treasury bonds Gain on sale of equipment 1 (see information item 4B) Gain on sale of stock (0n 2/14/2015 Jorgenson Jewelry sold 10 shares of ABC Corporation stock for $8,200. After reduction for a $200 broker commission, Jorgenson Jewelry received $8,000. The stock was purchased on 6/1/2011 for $5,000). Cost basis information was reported to the IRS on Form 1099-B. Loss on sale of stock (On 10/31/2015 Jorgenson Jewelry sold 100 shares of XYZ Corporation stock for $4,200. After reduction for a $200 broker commission, Jorgenson Jewelry received $4,000. The stock was purchased on 1/20/2015 for $13,000). Cost basis information was reported to the IRS on Form 1099-B. Premiums paid on term life insurance on the life of Jerry; Jorgenson Jewelry is the designated beneficiary. Salaries-officers (Paid to Jerry Jorgenson) Salaries-clerical and sales Employee benefits Bad debt expense Taxes (state, local, and payroll) Repairs Supplies Charitable contribution (On 5/16/2015 Jorgenson Jewelry contributed $80,000 in cash to the Red Cross). Interest expense on loan used to purchase state of Tennessee bonds Interest expense on business loans Fine paid to state of Tennessee for deceptive advertising Advertising Utilities Meals and Entertainment Expense Office Expenses Property and Casualty Insurance Accounting Fees Miscellaneous Expenses Equipment Rent Expense Depreciation Debit Credit $1,988,540 $ 6,200 831,800 80,000 8,000 3,400 4,800 20,000 3,000 9,000 5,000 160,000 200,000 29,000 700 32,400 11,000 12,100 80,000 2,300 25,800 1,500 24,900 28,720 9,000 12,500 3,800 7,620 2,000 6,200 22,500 Page 4 of 5 A comparative preliminary balance sheet for Jorgenson Jewelry reveals the following information: Assets Cash Trade notes and accounts receivable Allowance for Doubtful Accounts Income tax refund receivable Inventories Deferred Tax Asset Federal bonds State of Tennessee bonds Certificates of deposit Stock Investment Buildings and other depreciable assets Accumulated depreciation Land Total assets Liabilities and Equity Accounts payable Income tax payable Deferred tax liability Mortgages (Long-Term) Capital Stock Retained earnings Total liabilities and equity January 1, 2015 December 31, 2015 $90,586 98,040 (4,000) $92,826 112,800 (4,100) 407,200 3,604 52,000 114,000 90,000 150,000 420,000 (42,000) 60,000 $1,439,430 410,300 3,604 52,000 114,000 90,000 132,000 400,000 (48,500) 60,000 $1,414,930 January 1, 2015 December 31, 2015 $130,479 $70,168 1,344 252,900 125,000 929,707 $1,439,430 1,344 161,911 125,000 1,049,672 $1,414,930 Page 5 of 5