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12:41 PM 10/26/15 Accrual Basis Phoenix Medical Adjusted Trial Balance January through December 2014 Unadjusted Balance Debit Credit 10001 Checking 609,842.00 10010 Savings 557,392.23 10020 Cash Maximizer 558,380.05 11000 Accounts Receivable 260,990.00 18100 Loan to Shareholder 40,316.00 15500 Leasehold Improvements 506,889.00 1,699,776.00 17000 Accumulated Depreciation 18001 Investment in Big Labs 18050 Investment in R&D Company 866,507.20 122,601.00 39,065.51 r 1,207,401.72 30100 Capital Stock 1,000.00 400,000.00 32000 Retained Earnings 3,103,563.25 43700 Fee for Service Income 5,050,583.00 60000 Advertising and Promotion 60200 Automobile Expense 17,633.00 1,252.00 11,961.00 60400 Bank Service Charges 8,808.00 61000 Business Licenses and Permits 5,611.00 61100 Charitable Contributions (Cash) 60,000.00 61700 Computer and Internet Expenses 13,575.00 62400 Depreciation Expense 62500 Dues and Subscriptions 62600 Equipment Rental Adj 2 8,327.00 201,106.00 62600 Equipment Rental:62610 Laser Facility Rent 14,979.00 63300 Insurance Expense 55,356.00 63400 Interest Expense 63,678.00 63600 Laboratory Testing Fees 121,653.00 64300 Meals and Entertainment 16,725.00 64400 Medical Records and Supplies 103,456.00 66700 Professional Fees 123,945.00 67200 Repairs and Maintenance 18,855.00 67800 Salaries and Wages 321,580.00 67800 Salaries and Wages:67810 Officer Compensation 940,000.00 68000 Taxes:68010 Payroll Taxes 206,103.00 68000 Taxes:68020 State Tax 35,041.00 68500 Uniforms 16,121.00 68600 Utilities 30,364.00 70200 Interest Income r 0.00 28001 Business Loan 47300 Refunds Adj 1 & 2 3,206,518.00 20100 Credit Cards 31400 Shareholder Distributions Adj 1 1,240,071.00 20001 Accounts Payable 20200 Accrued Salaries Debit Adj 1 15000 Furniture and Equipment 16100 Medical Equipment Book Adjustments 833.00 Page 1 of 12 12:41 PM 10/26/15 Accrual Basis Phoenix Medical Adjusted Trial Balance January through December 2014 Unadjusted Balance Debit 70222 Tax Exempt Interest Book Adjustments Credit 70300 Sublease Rents 240,000.00 71000 Dividends 80,000.00 75000 Gain on Sale of Assets M-1 Accrual to Cash - Accounts Payable TOTAL Debit 17,621.00 Adj 1 11,102,739.48 11,102,739.48 0.00 Book Adjustments Adj 1 Sale of fixed assets Adj 2 2015 Depreciation r Reclass of accounts payable Tax Adjustments a Accrual to Cash Adjustment - Accounts Receivable b Charitable contributions carryover c 50% Meals and Entertainment d Non-deductible penalties e Tax Exempt interest f Accrual to Cash Adjustment - Accounts Payable Page 2 of 12 12:41 PM 10/26/15 Accrual Basis Phoenix Medical Adjusted Trial Balance January through December 2014 Book Adjustments Adjusted Book Balance Credit Debit Credit 10001 Checking 609,842.00 10010 Savings 557,392.23 10020 Cash Maximizer 558,380.05 11000 Accounts Receivable 260,990.00 18100 Loan to Shareholder 0.00 15000 Furniture and Equipment 40,316.00 15500 Leasehold Improvements 506,889.00 16100 Medical Equipment 1,699,776.00 17000 Accumulated Depreciation 18001 Investment in Big Labs 18050 Investment in R&D Company 1,240,071.00 3,206,518.00 866,507.20 20001 Accounts Payable 122,601.00 20100 Credit Cards 39,065.51 20200 Accrued Salaries 0.00 28001 Business Loan 1,207,401.72 30100 Capital Stock 31400 Shareholder Distributions Tax Adjustments 1,000.00 400,000.00 32000 Retained Earnings 3,103,563.25 43700 Fee for Service Income 5,050,583.00 47300 Refunds 60000 Advertising and Promotion 60200 Automobile Expense 17,633.00 1,252.00 11,961.00 60400 Bank Service Charges 8,808.00 61000 Business Licenses and Permits 5,611.00 61100 Charitable Contributions (Cash) 60,000.00 61700 Computer and Internet Expenses 13,575.00 62400 Depreciation Expense 62500 Dues and Subscriptions 62600 Equipment Rental 0.00 8,327.00 201,106.00 62600 Equipment Rental:62610 Laser Facility Rent 14,979.00 63300 Insurance Expense 55,356.00 63400 Interest Expense 63,678.00 63600 Laboratory Testing Fees 121,653.00 64300 Meals and Entertainment 16,725.00 64400 Medical Records and Supplies 103,456.00 66700 Professional Fees 123,945.00 67200 Repairs and Maintenance 18,855.00 67800 Salaries and Wages 321,580.00 67800 Salaries and Wages:67810 Officer Compensation 940,000.00 68000 Taxes:68010 Payroll Taxes 206,103.00 68000 Taxes:68020 State Tax 35,041.00 68500 Uniforms 16,121.00 68600 Utilities 30,364.00 70200 Interest Income b 833.00 Page 3 of 12 12:41 PM 10/26/15 Accrual Basis Phoenix Medical Adjusted Trial Balance January through December 2014 Book Adjustments Adjusted Book Balance Credit Debit 70222 Tax Exempt Interest Credit 17,621.00 70300 Sublease Rents e 240,000.00 71000 Dividends 80,000.00 75000 Gain on Sale of Assets M-1 Accrual to Cash - Accounts Payable TOTAL Tax Adjustments 0.00 0.00 0.00 11,102,739.48 Book Income 0.00 11,102,739.48 f 2,992,908 Book Adjustments Adj 1 Sale of fixed assets Adj 2 2015 Depreciation r Reclass of accounts payable Tax Adjustments a Accrual to Cash Adjustment - Accounts Receivable b Charitable contributions carryover c 50% Meals and Entertainment d Non-deductible penalties e Tax Exempt interest f Accrual to Cash Adjustment - Accounts Payable Page 4 of 12 12:41 PM 10/26/15 Accrual Basis Phoenix Medical Adjusted Trial Balance January through December 2014 Tax Adjustments Debit Adjusted Tax Balance Credit Debit 10001 Checking 609,842.00 10010 Savings 557,392.23 10020 Cash Maximizer 558,380.05 11000 Accounts Receivable 260,990.00 18100 Loan to Shareholder 0.00 15000 Furniture and Equipment 40,316.00 15500 Leasehold Improvements 506,889.00 16100 Medical Equipment 1,699,776.00 17000 Accumulated Depreciation 18001 Investment in Big Labs 3,206,518.00 18050 Investment in R&D Company 866,507.20 20001 Accounts Payable 20100 Credit Cards 20200 Accrued Salaries 28001 Business Loan 30100 Capital Stock 31400 Shareholder Distributions 400,000.00 32000 Retained Earnings 43700 Fee for Service Income a 47300 Refunds 17,633.00 60000 Advertising and Promotion 1,252.00 60200 Automobile Expense 11,961.00 60400 Bank Service Charges 8,808.00 61000 Business Licenses and Permits 5,611.00 61100 Charitable Contributions (Cash) 60,000.00 61700 Computer and Internet Expenses 13,575.00 62400 Depreciation Expense 0.00 62500 Dues and Subscriptions 8,327.00 62600 Equipment Rental 201,106.00 62600 Equipment Rental:62610 Laser Facility Rent 14,979.00 63300 Insurance Expense 55,356.00 63400 Interest Expense 63,678.00 63600 Laboratory Testing Fees 64300 Meals and Entertainment 121,653.00 c 16,725.00 64400 Medical Records and Supplies 103,456.00 66700 Professional Fees 123,945.00 67200 Repairs and Maintenance 18,855.00 67800 Salaries and Wages 321,580.00 67800 Salaries and Wages:67810 Officer Compensation 940,000.00 68000 Taxes:68010 Payroll Taxes 206,103.00 68000 Taxes:68020 State Tax d 35,041.00 68500 Uniforms 16,121.00 68600 Utilities 30,364.00 70200 Interest Income Page 5 of 12 12:41 PM 10/26/15 Accrual Basis Phoenix Medical Adjusted Trial Balance January through December 2014 Tax Adjustments Debit Adjusted Tax Balance Credit Debit 70222 Tax Exempt Interest 70300 Sublease Rents 71000 Dividends 75000 Gain on Sale of Assets M-1 Accrual to Cash - Accounts Payable TOTAL 0.00 0.00 0.00 11,102,739.48 Tax Income Book Adjustments Adj 1 Sale of fixed assets Adj 2 2015 Depreciation r Reclass of accounts payable Tax Adjustments a Accrual to Cash Adjustment - Accounts Receivable b Charitable contributions carryover c 50% Meals and Entertainment d Non-deductible penalties e Tax Exempt interest f Accrual to Cash Adjustment - Accounts Payable Page 6 of 12 12:41 PM 10/26/15 Accrual Basis Phoenix Medical Adjusted Trial Balance January through December 2014 Adjusted Tax Balance Credit 10001 Checking 10010 Savings 10020 Cash Maximizer 11000 Accounts Receivable 18100 Loan to Shareholder 15000 Furniture and Equipment 15500 Leasehold Improvements 16100 Medical Equipment 17000 Accumulated Depreciation 1,240,071.00 18001 Investment in Big Labs 18050 Investment in R&D Company 20001 Accounts Payable 20100 Credit Cards 20200 Accrued Salaries 28001 Business Loan 30100 Capital Stock 122,601.00 39,065.51 0.00 1,207,401.72 1,000.00 31400 Shareholder Distributions 32000 Retained Earnings 3,103,563.25 43700 Fee for Service Income 5,050,583.00 47300 Refunds 60000 Advertising and Promotion 60200 Automobile Expense 60400 Bank Service Charges 61000 Business Licenses and Permits 61100 Charitable Contributions (Cash) 61700 Computer and Internet Expenses 62400 Depreciation Expense 62500 Dues and Subscriptions 62600 Equipment Rental 62600 Equipment Rental:62610 Laser Facility Rent 63300 Insurance Expense 63400 Interest Expense 63600 Laboratory Testing Fees 64300 Meals and Entertainment 64400 Medical Records and Supplies 66700 Professional Fees 67200 Repairs and Maintenance 67800 Salaries and Wages 67800 Salaries and Wages:67810 Officer Compensation 68000 Taxes:68010 Payroll Taxes 68000 Taxes:68020 State Tax 68500 Uniforms 68600 Utilities 70200 Interest Income 833.00 Page 7 of 12 12:41 PM 10/26/15 Accrual Basis Phoenix Medical Adjusted Trial Balance January through December 2014 Adjusted Tax Balance Credit 70222 Tax Exempt Interest 70300 Sublease Rents 71000 Dividends 75000 Gain on Sale of Assets M-1 Accrual to Cash - Accounts Payable TOTAL 17,621.00 240,000.00 80,000.00 0.00 11,102,739.48 2,992,908 Book Adjustments Adj 1 Sale of fixed assets Adj 2 2015 Depreciation r Reclass of accounts payable Tax Adjustments a Accrual to Cash Adjustment - Accounts Receivable b Charitable contributions carryover c 50% Meals and Entertainment d Non-deductible penalties e Tax Exempt interest f Accrual to Cash Adjustment - Accounts Payable Page 8 of 12 Phoenix Medical 2:20 PM 10/26/15 Accrual Basis Adjusting Journal Entries January through December 2014 Date ### Num 2015 Adj 1 Memo to sell obsolete equipment to sell obsolete equipment to sell obsolete equipment to sell obsolete equipment ### 2015 Adj 2 to record 2015 depreciation on assets placed in service prior to 2015 to record 2015 depreciation on assets placed in service prior to 2015 to record Sec. 179 expense to record Sec. 179 expense to record depreciation on assets placed in service in 2015 to record depreciation on assets placed in service in 2015 TOTAL Page 9 of 12 Phoenix Medical 2:20 PM 10/26/15 Accrual Basis Adjusting Journal Entries January through December 2014 Account Debit Credit 17000 Accumulated Depreciation 16100 Medical Equipment 18100 Loan to Shareholder 75000 Gain on Sale of Assets 0.00 0.00 0.00 0.00 0.00 0.00 62400 Depreciation Expense 17000 Accumulated Depreciation 62400 Depreciation Expense 17000 Accumulated Depreciation 62400 Depreciation Expense 17000 Accumulated Depreciation TOTAL Page 10 of 12 Phoenix Medical 12:53 PM 10/26/15 Accrual Basis Balance Sheet As of December 31, 2014 Dec 31, 15 Dec 31, 14 $ Change ASSETS Current Assets Checking/Savings 10001 Checking 609,842.00 277,131.00 332,711.00 10010 Savings 557,392.23 325,541.23 231,851.00 10020 Cash Maximizer Total Checking/Savings 558,380.05 69,672.05 488,708.00 1,725,614.28 672,344.28 1,053,270.00 260,990.00 826,113.00 -565,123.00 260,990.00 826,113.00 -565,123.00 75,000.00 0.00 75,000.00 75,000.00 0.00 75,000.00 2,061,604.28 1,498,457.28 563,147.00 40,316.00 40,316.00 0.00 Accounts Receivable 11000 Accounts Receivable Total Accounts Receivable Other Current Assets 18100 Loan to Shareholder Total Other Current Assets Total Current Assets Fixed Assets 15000 Furniture and Equipment 15500 Leasehold Improvements 16100 Medical Equipment 17000 Accumulated Depreciation Total Fixed Assets 506,889.00 506,889.00 0.00 1,399,776.00 1,129,888.00 269,888.00 -1,568,773.00 -1,240,071.00 -328,702.00 378,208.00 437,022.00 -58,814.00 3,206,518.00 2,306,518.00 900,000.00 Other Assets 18001 Investment in Big Labs 18050 Investment in R&D Company 866,507.20 364,352.20 502,155.00 4,073,025.20 2,670,870.20 1,402,155.00 6,512,837.48 4,606,349.48 1,906,488.00 93,648.00 107,245.00 -13,597.00 93,648.00 107,245.00 -13,597.00 39,065.51 34,742.51 4,323.00 39,065.51 34,742.51 4,323.00 20200 Accrued Salaries 28,953.00 26,375.00 2,578.00 Total Other Current Liabilities 28,953.00 26,375.00 2,578.00 161,666.51 168,362.51 -6,696.00 28001 Business Loan 1,207,401.72 1,333,423.72 -126,022.00 Total Long Term Liabilities 1,207,401.72 1,333,423.72 -126,022.00 1,369,068.23 1,501,786.23 -132,718.00 1,000.00 1,000.00 0.00 Total Other Assets TOTAL ASSETS LIABILITIES & EQUITY Liabilities Current Liabilities Accounts Payable 20001 Accounts Payable Total Accounts Payable Credit Cards 20100 Credit Cards Total Credit Cards Other Current Liabilities Total Current Liabilities Long Term Liabilities Total Liabilities Equity 30100 Capital Stock Page 11 of 12 12:53 PM 10/26/15 Accrual Basis Phoenix Medical Balance Sheet As of December 31, 2014 Dec 31, 15 31400 Shareholder Distributions 32000 Retained Earnings Net Income Total Equity TOTAL LIABILITIES & EQUITY Dec 31, 14 $ Change -400,000.00 0.00 -400,000.00 3,103,563.25 3,103,563.25 0.00 2,439,206.00 0.00 2,439,206.00 5,143,769.25 3,104,563.25 2,039,206.00 6,512,837.48 4,606,349.48 1,906,488.00 Page 12 of 12 Phoenix Medical Worksheet ACC/455 Version 3 University of Phoenix Material Phoenix Medical Worksheet Week 3 Determine Adjusted Book Income: 1. You are provided with the unadjusted trial balance (Microsoft Excel) and your manager's meeting notes and questions (Microsoft Word) for your new tax client - Phoenix Medical. 2. Following the notes, modify the unadjusted trial balance to generate a trial balance workpaper (in Microsoft Excel) that includes: a. Adjusting Journal Entries b. Adjusted Book Income c. Tax Journal Entries d. Taxable Income e. Answers to your manager's questions (Microsoft Word or Excel). 2. The client depends on you, the CPA, to provide journal entries for activity in fixed assets. While discussing fixed assets, the client divulges that he got a great deal to upgrade his laser dermatology equipment. Ultimately, you find out that $569,888 of new equipment was purchased and placed in service on 6/18/2015. 3. Furthermore, and much after the fact, you discover that old medical equipment was sold to an unrelated party for $75,000 cash. The original cost of the equipment was $300,000 and it was fully depreciated (no Sec. 179). The cash was deposited in one of the shareholders personal accounts. a. Provide a journal entry to calculate the gain on sale and adjust the fixed asset and accumulated depreciation accounts. b. What is the nature of this gain? c. Could the Dr. have structured this sale in a different way to avoid taxable income? How? 4. The client depends on his accountant to provide a journal entry for the annual depreciation expense. They have adopted a policy of treating book depreciation equal to tax depreciation. Depreciation expense for the year will include: a. Depreciation on assets placed in service prior to 2015 is: $86,769 b. Maximize Sec. 179 expense on assets placed in service in 2015. c. Take Sec. 168(k) - 50% Bonus - on new equipment if applicable. Week 3 Determine Taxable Income: 1. Determine taxable income. Show all adjustments in the Microsoft Excel spreadsheet. Footnote references are provided to assist you. 2. The Dr. has filed his prior tax returns on the cash basis. a. What questions will you ask to be sure he can continue to file on the cash basis? 3. You find that in 2015, the Dr. qualifies, and choose to file on the cash basis. His books are kept on the accrual basis. Determine the adjustments needed. 4. No federal taxes were paid in 2014, and no estimated taxes were paid in 2015. 5. Within the state tax expense, you find $4,389 is late payment penalties. 6. While analyzing the financial information, you find that hidden in \"Accounts Payable\" is $28,953 of accrued salaries. You also find that the salaries were paid in the first week of February. a. Does this have an impact on taxable income? 7. Determine the accrual to cash adjustments for accounts receivable and accounts payable. Copyright 2015 by University of Phoenix. All rights reserved. 1 Phoenix Medical Worksheet ACC/455 Version 3 a. A charitable contribution carryforward of $40,000 is available. b. Included in insurance expense is $12,523 of officers' life insurance. You determine the company is the beneficiary, and each officer is a greater than 20% shareholder. Copyright 2015 by University of Phoenix. All rights reserved. 2 Resources: Phoenix Medical Data Worksheet Student Part 1, Phoenix Medical Worksheet Student Part 1 Include the following: . Complete the Book Adjustments (Adj1 Sale of xed assets, Adj2 2015 Depreciation, and Reclass of accounts payable) using the included resources. . Adjust the Journal Entries using the included resources for 2015 depreciation. . Apply information from the included resources to complete the Tax Adjustments: Accrual to Cash Adjustment - Accounts Receivable; Charitable contributions carryover; 50% Meals and Entertainment; Non-deductible penalties; Tax Exempt interest; Accrual to Cash Adjustment - Accounts Payable. _.._