Part $3$ Writing Project Taxation:

This week's assignment is to complete Part $3$ of the portfolio project and to submit the final versions of Part $1$ and Part $2$ of the project for a completed Portfolio Project.

Please prepare a hypothetical tax calculation based on the different type of entities given the same amount of taxable income.

$$ What would the client tax liability look like if the entity was a C Corp, an S Corp, or a sole proprietorship?

$$ Prepare a hypothetical tax return, using software, as either a C or S Corp based on your determination of which would be better for this client.

Submit the final Portfolio Project $($Parts $1$ through $3$ in their final versions$)$ for grading.

Company Background

Florida Chocolate Inc. was first opened as a sole proprietor in $20$x$2$ under the name Alexandria$$s Chocolates. The company produced $4$ specialty chocolate products using an old family recipe, which only the owner, Alexandria Vierra, knows. The company started as a small home$-$based business.

In $20$x$4$ Alexandria decided to expand the business, opened a factory in Ft$.$ Lauderdale Florida and converted the business to a corporation named Florida Chocolate Inc. Due to the huge success of the business she decided to expand to Europe in $20$x$6,$ opening another factory in England. This factory is run by Alexandria$$s brother Nelson. The third factory was opened in Brazil in $20$x$9$ and is run by Alexandria$$s sister Laura.

Project Information:

Alexandria contracted you as her accountant and is seeking advice on switching from a sole proprietorship to a corporation in $20$x$3.$

Florida Chocolate Inc.

Statement of Operations

at December $31,20$x$3$

Net sales $$20,000,000$

Cost of sales $12,000,000$

Gross profit $8,000,000$

Compensation $500,000$

Selling expenses $750,000$

Depreciation and amortization $1,250,000$

Other expenses $1,000,000$

Total operating expenses $3,500,000$

Income from operations $$4,500,000$

Interest and other income $25,000$

Income before income taxes $$4,525,000$

You have identified the following permanent differences:

Interest income from municipal bonds $$10,000$

Nondeductible stock compensation $5,000$

Nondeductible fines $1,000$

Florida Chocolate Inc. prepared the following schedule of temporary differences from the beginning of the year to the end of the year:

Florida Chocolate Inc.

Temporary Difference Scheduling Template

BOY Current EOY EOY

Taxable Deferred Year Cumulative Deferred

Temporary Differences Taxes Change T$/$D Taxes

Accumulated depreciation $(1,050,000)(500,000)(5,500,000)(1,155,000)$

BOY Current EOY EOY

Deductible Deferred Year Cumulative Deferred

Temporary Differences Taxes Change T$/$D Taxes

Allowance for bad debts $21,00010,000110,00023,100$

Prepaid income $020,00020,0004,200$

Deferred compensation $10,50010,00060,00012,600$

Accrued pension liabilities $105,000100,000600,000126,000$

Total $136,500140,000790,000165,900$