income tax project

Question:Fact

Valerie Lawson and Clara Norman are the sole equal shareholders in the corporation of Lawson And Norman Enterprises, Inc.The corporation, which is a retail office supplies and stationery store, began its operations on January 2, 1985 (also date of incorporation).For Federal Income Tax purposes, the corporation is a calendar year taxpayer and uses the Accrual Method Of Accounting.Its Employer Identification Number is 76-1234567, address is 4369 Robbie Lane Houston, Texas 77026-3915, telephone number is (281) 479-8132, fax number is (281) 567-9024 and E-Mail address is "lawsonandnormanenterprises.com".The business activity code for the corporation is 453210.Valerie Lawson is the president of the corporation and its contact person for Federal Income Tax purposes and Clara Norman is the secretary and treasurer of the corporation.Both are full-time employees of the corporation devoting one hundred percent (100%) of their time to the business and each has an annual salary of $75,000.Valerie Lawson's social security number is 234-56-7890 and her address is 8124 Annette Court Houston, Texas 77031-9475.Clara Norman has social security number of 890-12-3456 and her address is 2716 Nanette Drive Houston, Texas 77061-3459.

FINANCIAL INFORMATION

During the year of 2016, Lawson And Norman Enterprises, Inc. reported the following Income and Expenses (including necessary accruals) for Financial Accounting purposes:

Gross Receipts$1,482,000

Sales Returns And Allowances109,000

Purchases510,000

Dividends Received From Stock (Not Qualified Dividends)

Investments In Less Than twenty percent (20%)

Owned United States (U. S.) Corporation80,000

Interest Income:

Taxable Interest18,000

Tax-Exempt Interest7,200

Salaries:Officers150,000

Other Employees108,000

Repairs And Maintenance19,300

Rent Expense - Office84,000

Rent Expense - Equipment15,500

Payroll Taxes (Federal And State)19,600

Interest Expense25,200

Advertising Expense44,500

Charitable Contributions48,000

Legal And Professional Fees28,800

Depreciation Expense50,000 *

Utilities Expense27,300

Employee's Health Insurance Premiums14,200

Entertainment Of Clients5,000

Officers' Life Insurance Premiums14,400 **

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* - Based upon Straight-Line Depreciation, a useful life of five (5) years and no salvage value for allassets (see specific assets below).

** - Lawson And Norman Enterprises, Inc. Is The Designated Beneficiary.

The Lawson And Norman Enterprises, Inc. owns the following depreciable assets:

ASSET DESCRIPTIONDATE ACQUIREDORIGINAL COST

Automobile - 2015 Lexus 460April 1, 2015$ 50,000

(Five-year Property)

Automobile - 2015 Cadillac SevilleApril 1, 201550,000

(Five-year Property)

Furniture And FixturesMay 1, 2014150,000

(Seven-year Property)

Each automobile was used a total of 18,000 miles during the year of 2016 all which were business miles.The automobiles were not available for personal use during off-duty hours and were used solely by Valerie Lawson and Clara Norman, who both have another vehicle available for personal use. For Federal Income Tax purposes, all of these assets are depreciated using the Modified Accelerated Cost Recovery System (MACRS).Section 179 Deduction was not elected in regards to any of these assets nor was Straight-Line Depreciation used.

BALANCE SHEETS

The Balance Sheets (Financial Accounting) for the Lawson And Norman Enterprises, Inc. at the beginning and ending of the year of 2016 are as follows:

ASSETSJanuary 1December 31

Cash$36,000$84,000

Trade Notes And Accounts Receivable96,00090,000

Inventory(Valued At Cost) *120,000100,000

Marketable Securities - Long Term140,000170,000

Depreciable Assets (And Land)260,000 **260,000 **

Less: Accumulated Depreciation(65,000)(115,000)

Other Assets (Deposits)12,00012,000

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TOTAL ASSETS$ 599,000$ 601,000

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LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts Payable (Non Recourse)$96,000$ 116,200

Federal Income Taxes Payable8,600?

Notes Payable - Short Term (Recourse)16,00024,000

Notes Payable - Long Term (Recourse)164,000212,000

Common Stock10,00010,000

Retained Earnings (Unappropriated)304,400229,042

TOTAL LIABILITIES AND------------------------

STOCKHOLDERS' EQUITY$599,000$601,000

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*- The rules of Section 263A of the Internal Revenue Code do not apply to the corporation.

** - Includes $10,000 allocated to Land.

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ESTIMATED TAX PAYMENTS

During 2016, Lawson And Norman Enterprises, Inc. made the following estimated tax payments:

April 15, 2016$30,000

June 15, 2016$20,000

September 15, 2016$20,000

December 15, 2016$10,000

The 2015 Federal Income Tax liability for Lawson And Norman Enterprises, Inc. was $76,800 and no overpayment of 2015 Federal Income Tax is being applied to the 2016 Federal Income Tax liability of Lawson And Norman Enterprises, Inc.

OTHER INFORMATION

Both shareholders of Lawson And Norman Enterprises, Inc. are United States Citizens.Lawson And Norman Enterprises, Inc. does not own directly or indirectly fifty percent (50%) or more of the voting stock in any other domestic corporation and the corporation is not a subsidiary in an affiliated group or a parent-subsidiary controlled group. During the year of 2016, Lawson And Norman Enterprises, Inc. paid cash dividends of $280,000 ($140,000 to each shareholder) and the corporation did not pay dividends in excess of the corporation's Current Earnings And Profits and Accumulated Earnings And Profits.In addition, Lawson And Norman Enterprises, Inc. is not a shareholder in any foreign corporation nor has any interest in or a signature or other authority over any financial account in a foreign country. Furthermore, during the year of 2016, the corporation did not receive a distribution from nor was a grantor of, or transferor to, a foreign trust.Moreover, Lawson And Norman Enterprises, Inc. did not issue publicly offered debt instruments with original issue discount. Finally, the corporation had no Net Operating Losses (NOL's) carryover from prior tax years.

REQUIRED

Prepare the C (Regular) Corporation Tax Return for the Lawson And Norman Enterprises, Inc. for the tax year of 2016.The following Forms are needed to complete the Tax Return:

Form 1120

Form 1125-A

Form 1125-E

Schedule G (Form 1120)

Form 4562

Form 4626

The Income Tax Return is due onMAY 6, 2017.

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CHECK FIGURESFORM 1120INCOME (Page 1)

1.Total Income (Line 11):$941,000.

DEDUCTIONS (Page 1)

1.Charitable Contributions (Line 19):$36,566.

2.Depreciation (Line 20):$36,437. (Also Line 22 - Form 4562)

3.Total Deductions (Line 27):$611,903.

4.Taxable Income (Line 30):$273,097.

SCHEDULE M-1 (Page 5)

1.Net Income (Loss) Per Books (Line 1):$204,642.

2.Expenses Recorded On Books This Year

Not Deducted On This Return (Itemize) (Line 5):$41,897.

SCHEDULE M-2 (Page 5)

1.Balance At End Of Year (Line 8):$229,042.