Moduel 3 95. Stephanie Zane is the sole proprietor of Shear Madness, a hair salon. Her revenue

comes from two sources, haircuts and the sale of hair products. Stephanie has three

employees whose compensation consists of a weekly salary and a 40% commission

on the services they provide to the customer. Stephanie uses a hybrid method of

accountingthe cash method for haircuts and the accrual method for sales of hair

products. For the current year she has the following revenue and expenses:

Revenue from haircuts $141,650

Revenue from the sale of products 36,240

Beginning inventory of product 1,756

Ending inventory of product 1,469

Product purchased 18,345

Gross salaries (including commission) 66,000

Social Security taxes 5,049

Employee withholding:

Social Security taxes 5,049

Federal taxes 15,200

State taxes 4,200

Other payroll taxes 375

Advertising 1,200

Rent 12,100

Utilities 1,600

Phone 570

Postage 220

Accounting fees 1,200

Legal fees 625

Complete Form 1040 Schedule C (Profit or Loss From Business) and Form 1040

Schedule SE (Self-Employment Tax) using the above information. Stephanies

Social Security number is 123-62-7897, her employer ID number is 05-9987561,

and her business address is 99 Fortin Lane, Metuchen, New Jersey 07865. Forms

and instructions can be downloaded from the IRS Web site (www.irs.gov).