You own a t-shirt screen printing  company called Back the Pack.  Back the Pack operates as a regular  Corporation under Subchapter C of the Internal Revenue Code.   Back  the Pack incorporated on April 1, 2013 and business began on June 1, 2013.   The company owns the building that the store is located in and all of the  equipment that the business uses.  The tax year for the Corporation is the  calendar year and it is on the accrual method.  The tax identification  number for Back the Pack is 12345678.
Please complete the 2014 Form 4562 – Depreciation and Amortization. You  do not need to complete Parts I, II, and V of the form because you should assume  there is no Section 179 deduction, bonus depreciation, or listed property  for the 2014 tax year.  You will compute MACRS depreciation in Parts III  and IV and amortization in Part VI.  You  will also need to complete Page 1 of the 2014 Form 1120 – U.S.  Corporation Income Tax Return.  You will only need to complete through  line 31.  These forms are found on the IRS website (www.irs.gov).  Also, complete the Modified Schedule M-1  Reconciliation of Income (Loss) per Books with Income per Return uploaded  on Moodle instead of the Schedule M-1 on page 5 of the Form 1120. 

Note that the depreciation and  amortization amounts computed on Form 4562 flow to Form 1120 page 1.  The Form 1120 page 1 is the tax income  statement that includes all tax amounts for income and deductions.  The Modfied Schedule M-1 starts with net  income per books and adjusts the book revenues and expenses to tax amounts  using book-tax differences.  Line 28 of  the Form 1120 should tie to line 8 on the Schedule M-1.  Use the appendix in your textbook to compute  the total corporate tax on line 31 of the Form 1120.  Do not worry about including any  non-numerical information that is not provided with the assignment.

The company owns the following assets:

Land purchased on 5/1/2013 for $180,000.  The land was placed in service  on 6/1/2013.

Building purchased on 5/1/2013 for $350,000.  The building was placed in  service on 6/1/2013. 

Screen printing machinery purchased and placed in service on 6/1/2013 for $85,000.   

Office equipment purchased and placed in service on 1/1/2014 for $90,000

Additional screen printing machinery purchased and placed in service on 2/1/2014  for $425,000

Computer equipment purchased and placed in service on 3/1/2014 for $35,000

Patent purchased and placed in  service on 7/1/2014 for $21,000.  The patent was purchased from another  business and has a remaining legal life of 7 years.  For book purposes,  the patent is amortized using the straight line method over 7 years.

Warehouse purchased and placed in service on 9/1/2014 for $300,000 

Back the Pack uses straight line depreciation for book purposes.  Book  depreciation expense is $95,600 in 2014. 

In addition to depreciation  expense, you had the following book income and expenses in 2014:

Income from t-shirt  sales of $1,150,000.  Related cost of goods sold of $200,000Muni bond interest  income of $12,000Salaries and wages of  $250,000A fine paid to the  City of Raleigh of $6,000Advertising costs of  $7,000Meals and  entertainment expenses of $14,000 Increases in the Allowance for Bad Debts account equaled $13,000 and  specific account write-offs totaled $15,000$6,000 in 2013.  Two-quarters of the consulting services related to  this payment were performed in 2013, one-quarter were performed in 2014, and  the remainder will be performed in 2015.$10,000 in 2014.  One-fifth of the consulting services related to  this payment were performed in 2014.  The remaining services will be  performed in 2015.

Back the Pack incurred  the following expenses in 2013, which may be relevant to the 2014 return.   These costs were expensed for book purposes in 2013.

• Organizational costs of $8,000 Start-up costs of $7,000