Melodic Musical Sales, Inc Melodic Musical Sales, Inc is located at 5500 Fourth Avenue, City, ST 98765 The corporation uses the calendar year and accrual basis for both book and tax purposes It is engaged in the sale of musical instruments with an employer identification number (EIN) of 22 2015013 The company incorporated on December 31, 2010, and began business on January 2, 2011 The income statement for 2014 and balance sheet information at January 1, 2014 and December 31, 2014 follow These schedules are presented on a book basis Other information follows the tables Melodic Musical Sales, Inc Book Income Statement 2014 Sales $ 9,800,000 Returns $ (245,000) Net sales $ 9,555,000 Beginning inventory $ 2,450,000 Purchases $ 5,390,000 Ending inventory $ (3,430,000) Cost of gooods sold $ (4,410,000) Gross profit $ 5,145,000 Expenses Amortization $ Depreciation $ 256,000 Repairs $ 20,384 General ins $ 53,900 Net premium Off Life ins $ 44,100 Officer's compensation $ 637,000 Other salaries $ 392,000 Utilities $ 70,560 Advertising $ 47,040 Legal and accounting fees $ 49,000 Charitable contributions $ 29,400 Payroll taxes $ 61,250 Interest expense $ 205,800 Bad debt expense $ 42,904 Total expenses $ (1,909,338) Gain on sale of equipment $ 80,000 Interest on municipal bonds $ 4,900 Net gain on stock sales $ 48,000 Dividend income $ 11,760 Net income before income taxes $ 3,380,322 Federal income tax expense $ (1,134,849) State income tax expense $ (73,500) Net income $ 2,171,973 Melodic Musical Sales, Inc Book Balance Sheet Information January 1, 2014 December 31, 2014 Debit Credit Debit Credit Cash $ 125,614 $ 289,607 Accounts receivable 455,112 529,200 Allowance for doubtful accounts $ 22,756 $ 26,460 Inventory 2,450,000 3,430,000 Investment in corporate stock 370,000 50,000 Investment in municipal bonds 32,000 32,000 Net current deferred tax asset 12,837 8,996 Cash surrender value of insurance policy 42,000 57,000 Land 300,000 300,000 Buildings 2,000,000 2,000,000 Accumulated depreciation Buildings 100,000 140,000 Equipment 900,000 2,800,000 Accumulated depreciation Equipment 150,000 250,000 Trucks 280,000 280,000 Accumulated depreciation Trucks 84,000 140,000 Accounts payable 340,000 306,000 Notes payable (short term) 650,000 520,000 Accured payroll taxes 14,700 18,375 Accrued state income taxes 8,820 14,700 Accrued federal income taxes 127,584 Bonds payable (long term) 2,500,000 3,000,000 Net noncurrent deferred tax liability 157,287 219,711 Capital stock Common 980,000 980,000 Retained earnings Unappropriated 1,960,000 4,033,973 Totals $ 6,967,563 $ 6,967,563 $ 9,776,803 $ 9,776,803 Taxable income in 2013 was $1 2 million, and the 2013 tax was $408,000 The corporation earned its 2014 taxable income evenly throughout the year Therefore, it does not use the annualization or seasonal methods The corporation made $941,000 of estimated federal tax payments for 2014 Officers (Form 1125 E, Schedule G) The corporation has three officers Mary Travis (SSN 123 45 6789), John Willis (SSN 987 65 4321) and Chris Parker (SSN 456 89 1234) that all work full time Their salaries are $287,000, $175,000 and $175,000 respectively In addition, they own 50 , 25 and 25 of the common stock respectively The corporation has not issued any preferred stock Inventory and Cost of Goods sold (Form 1125 A) The corporation uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market Only beginning inventory, ending inventory, and purchases should be reflected on Form 1125 A No other costs or expenses are allocated to cost of goods sold Note the corporation is exempt from the uniform capitalization (UNICAP) rules because average gross income for the previous three years was less than $10 million There was no changes to measuring inventories nor where there any write downs Organizational Expenditures The corporation incurred $14,000 of organizational expenditures on January 2, 2010 For book purposes, the corporation expensed the entire expenditure For tax purposes, the corporation elected under Sec 248 to immediately expense the maximum amount in 2011 and amortized the remainder (with a full months amortization taken for January 2011) The corporation reports this amortization in Part VI of Form 4562 and includes it in Other Deductions on Form 1120, Line 26 Capital Gains and Losses The corporation sold 100 shares of PDQ Corp common stock on October 8, 2014, for $200,000 The corporation acquired the stock on December 15, 2013, for $140,000 The corporation also sold 75 shares of JSB Corp common stock on June 18, 2014, for $168,000 The corporation acquired this stock on September 18, 2012, for $180,000 The basis of the stock was reported to the IRS on both transactions The corporation has a $15,000 capital loss carryover from 2013 Fixed Assets and Depreciation For book purposes The corporation uses straight line depreciation over the useful lives of assets as follows Store building, 50 years Equipment, 15 years (old) and ten years (new) and Trucks, five years The corporation takes a half years depreciation in the year of acquisition and the year of disposition and assumes no salvage value The book financial statements (above) reflect these calculations For tax purposes All assets are MACRS property as follows Store building, 39 year non residential real property equipment, seven year property and trucks, five year property The corporation acquired the store building for $2 million and placed it in service on January 2, 2011 The corporation acquired two pieces of equipment for $300,000 (Equipment 1) and $600,000 (Equipment 2) and placed them in service on January 2, 2011 The corporation acquired the trucks for $280,000 and placed them in service on July 18, 2012 The trucks are not listed property and are not subject to the limitation on luxury automobiles The corporation did not make the expensing election under Sec 179 or take bonus depreciation on any property acquired before 2014 On October 16, 2014, the corporation sold for $320,000 Equipment 1 that originally cost $300,000 on January 2, 2011 The corporation had no 1231 losses from prior years In a separate transaction on October 17, 2014, the corporation acquired and placed in service a piece of equipment costing $2 2 million Assume these two transactions do not qualify as a like kind exchange under Reg 1 1031(k) 1(a) The new equipment is seven year property The corporation made the 179 expensing election with regard to the new equipment but elected out of bonus depreciation Where applicable, use published IRS depreciation tables to compute depreciation Other Information The corporations activities do not qualify for the U S production activities deduction Ignore the AMT and accumulated earnings tax The corporation received dividends from taxable, domestic corporations, the stock of which Melodic Musical Sales, Inc owns less than 20 The corporation paid $98,000 in cash dividends to its shareholders during the year and charged the payment directly to retained earnings The state income tax in the income statement is the exact amount of such taxes incurred during the year The corporation is not entitled any credits Ignore the financial statement impact of any underpayment penalties incurred on the tax return Required Prepare the 2014 corporate tax return for Melodic Musical Sales, Inc along with any necessary supporting schedules Do not prepare Schedule M 3, but instead complete Schedule M 1 on the Form 1120 Do not prepare Form 2220 and assume there is no estimated tax penalty

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Melodic Musical Sales, Inc. Melodic Musical Sales, Inc. is located at 5500 Fourth Avenue, City, ST 98765. The corporation uses the calendar year and accrual

Melodic Musical Sales, Inc.

Melodic Musical Sales, Inc. is located at 5500 Fourth Avenue, City, ST 98765. The corporation uses the calendar year and accrual basis for both book and tax purposes. It is engaged in the sale of musical instruments with an employer identification number (EIN) of 22-2015013. The company incorporated on December 31, 2010, and began business on January 2, 2011. The income statement for 2014 and balance sheet information at January 1, 2014 and December 31, 2014 follow. These schedules are presented on a book basis. Other information follows the tables.

Melodic Musical Sales, Inc.

Book Income Statement 2014

Sales

$ 9,800,000

Returns

$ (245,000)

Net sales

$ 9,555,000

Beginning inventory

$ 2,450,000

Purchases

$ 5,390,000

Ending inventory

$ (3,430,000)

Cost of gooods sold

$ (4,410,000)

Gross profit

$ 5,145,000

Expenses:

Amortization

$ -

Depreciation

$ 256,000

Repairs

$ 20,384

General ins.

$ 53,900

Net premium - Off. Life ins.

$ 44,100

Officer's compensation

$ 637,000

Other salaries

$ 392,000

Utilities

$ 70,560

Advertising

$ 47,040

Legal and accounting fees

$ 49,000

Charitable contributions

$ 29,400

Payroll taxes

$ 61,250

Interest expense

$ 205,800

Bad debt expense

$ 42,904

Total expenses

$ (1,909,338)

Gain on sale of equipment

$ 80,000

Interest on municipal bonds

$ 4,900

Net gain on stock sales

$ 48,000

Dividend income

$ 11,760

Net income before income taxes

$ 3,380,322

Federal income tax expense

$ (1,134,849)

State income tax expense

$ (73,500)

Net income

$ 2,171,973

Melodic Musical Sales, Inc.
Book Balance Sheet Information

	January 1, 2014		December 31, 2014
	Debit	Credit	Debit	Credit

Cash	$ 125,614		$ 289,607
Accounts receivable	455,112		529,200
Allowance for doubtful accounts		$ 22,756		$ 26,460
Inventory	2,450,000		3,430,000
Investment in corporate stock	370,000		50,000
Investment in municipal bonds	32,000		32,000
Net current deferred tax asset	12,837		8,996
Cash surrender value of insurance policy	42,000		57,000
Land	300,000		300,000
Buildings	2,000,000		2,000,000
Accumulated depreciation - Buildings		100,000		140,000
Equipment	900,000		2,800,000
Accumulated depreciation - Equipment		150,000		250,000
Trucks	280,000		280,000
Accumulated depreciation - Trucks		84,000		140,000
Accounts payable		340,000		306,000
Notes payable (short-term)		650,000		520,000
Accured payroll taxes		14,700		18,375
Accrued state income taxes		8,820		14,700
Accrued federal income taxes				127,584
Bonds payable (long-term)		2,500,000		3,000,000
Net noncurrent deferred tax liability		157,287		219,711
Capital stock - Common		980,000		980,000
Retained earnings - Unappropriated		1,960,000		4,033,973
Totals	$ 6,967,563	$ 6,967,563	$ 9,776,803	$ 9,776,803
Taxable income in 2013 was $1.2 million, and the 2013 tax was $408,000. The corporation earned its 2014 taxable income evenly throughout the year. Therefore, it does not use the annualization or seasonal methods. The corporation made $941,000 of estimated federal tax payments for 2014. Officers (Form 1125-E, Schedule G): The corporation has three officers: Mary Travis (SSN 123-45-6789), John Willis (SSN 987-65-4321) and Chris Parker (SSN 456-89-1234) that all work full-time. Their salaries are $287,000, $175,000 and $175,000 respectively. In addition, they own 50%, 25% and 25% of the common stock respectively. The corporation has not issued any preferred stock. Inventory and Cost of Goods sold (Form 1125-A): The corporation uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should be reflected on Form 1125-A. No other costs or expenses are allocated to cost of goods sold. Note: the corporation is exempt from the uniform capitalization (UNICAP) rules because average gross income for the previous three years was less than $10 million. There was no changes to measuring inventories nor where there any write-downs. Organizational Expenditures: The corporation incurred $14,000 of organizational expenditures on January 2, 2010. For book purposes, the corporation expensed the entire expenditure. For tax purposes, the corporation elected under Sec. 248 to immediately expense the maximum amount in 2011 and amortized the remainder (with a full months amortization taken for January 2011). The corporation reports this amortization in Part VI of Form 4562 and includes it in Other Deductions on Form 1120, Line 26. Capital Gains and Losses: The corporation sold 100 shares of PDQ Corp. common stock on October 8, 2014, for $200,000. The corporation acquired the stock on December 15, 2013, for $140,000. The corporation also sold 75 shares of JSB Corp. common stock on June 18, 2014, for $168,000. The corporation acquired this stock on September 18, 2012, for $180,000. The basis of the stock was reported to the IRS on both transactions. The corporation has a $15,000 capital loss carryover from 2013. Fixed Assets and Depreciation: For book purposes: The corporation uses straight-line depreciation over the useful lives of assets as follows: Store building, 50 years; Equipment, 15 years (old) and ten years (new); and Trucks, five years. The corporation takes a half-years depreciation in the year of acquisition and the year of disposition and assumes no salvage value. The book financial statements (above) reflect these calculations. For tax purposes: All assets are MACRS property as follows: Store building, 39-year non-residential real property; equipment, seven-year property; and trucks, five-year property. The corporation acquired the store building for $2 million and placed it in service on January 2, 2011. The corporation acquired two pieces of equipment for $300,000 (Equipment 1) and $600,000 (Equipment 2) and placed them in service on January 2, 2011. The corporation acquired the trucks for $280,000 and placed them in service on July 18, 2012. The trucks are not listed property and are not subject to the limitation on luxury automobiles. The corporation did not make the expensing election under Sec. 179 or take bonus depreciation on any property acquired before 2014. On October 16, 2014, the corporation sold for $320,000 Equipment 1 that originally cost $300,000 on January 2, 2011. The corporation had no 1231 losses from prior years. In a separate transaction on October 17, 2014, the corporation acquired and placed in service a piece of equipment costing $2.2 million. Assume these two transactions do not qualify as a like-kind exchange under Reg. 1.1031(k)-1(a). The new equipment is seven-year property. The corporation made the 179 expensing election with regard to the new equipment but elected out of bonus depreciation. Where applicable, use published IRS depreciation tables to compute depreciation. Other Information: The corporations activities do not qualify for the U.S. production activities deduction. Ignore the AMT and accumulated earnings tax. The corporation received dividends from taxable, domestic corporations, the stock of which Melodic Musical Sales, Inc. owns less than 20%. The corporation paid $98,000 in cash dividends to its shareholders during the year and charged the payment directly to retained earnings. The state income tax in the income statement is the exact amount of such taxes incurred during the year. The corporation is not entitled any credits Ignore the financial statement impact of any underpayment penalties incurred on the tax return Required: Prepare the 2014 corporate tax return for Melodic Musical Sales, Inc. along with any necessary supporting schedules. Do not prepare Schedule M-3, but instead complete Schedule M-1 on the Form 1120. Do not prepare Form 2220 and assume there is no estimated tax penalty.