Question
Preparation of tax returns and related schedules can be very helpful in terms of integrating and applying tax concepts. To that end, please prepare the
Preparation of tax returns and related schedules can be very helpful in terms of integrating and applying tax concepts. To that end, please prepare the appropriate tax forms and schedules for the problem below. You may use the software provided with your textbook or prepare the forms by hand. Instructions for all forms and schedules may be obtained from the IRS website. Please submit a hard copy of your solution with schedules and forms in proper attachment order (stapled or clipped) in class. Check figure: Taxable Income (line 28) = $1,439,250.
On November 17, 2001, Amber Leigh and Andrew Johns formed Dawson, Inc. to sell sporting goods. Pertinent information regarding Dawson, Inc. is summarized as follows:
Dawson Inc.s business address is 2120 Rebecca Lane, Great Falls, Montana 59401; its telephone number is (575) 541-1122; and its email address is dawson@dawson.com.
The employer identification number is 11-1111111, and the principal business activity code is 451110.
Andrew is president of the company, and Amber is vice president.
Andrew and Amber are full-time employees of Dawson, Inc. Andrews Social Security number is 123-45-6789, and Ambers Social Security number is 987-65-4321.
Dawson, Inc. is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. Dawson, Inc. uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes.
Dawson, Inc.s income statement for 2018 is shown on page 2.
Dawson, Inc.s balance sheet is as follows:
|
| January 1, 2018 | December 31, 2018 |
| Cash | 1,200,000 | 1,250,000 |
| Accounts receivable | 2,062,500 | 2,247,000 |
| Inventories | 2,750,000 | 3,030,000 |
| Stock investment | 1,125,000 | 1,075,000 |
| State of Montana bonds | 375,000 | 375,000 |
| Certificates of Deposit | 400,000 | 400,000 |
| Buildings and other depreciable assets | 1,805,000 | 1,805,000 |
| Accumulated depreciation | (727,000) | (1,602,000) |
| Land | 812,500 | 812,500 |
| Other assets | 140,000 | 178,500 |
| Total assets | 9,943,000 | 9,571,000 |
| Accounts payable | 2,284,000 | 1,970,780 |
| Other current liabilities | 175,000 | 155,000 |
| Mortgages | 4,625,000 | 4,575,000 |
| Capital stock | 1,500,000 | 1,500,000 |
| Retained Earnings | 1,359,000 | 1,370,220 |
| Total liabilities and equity | 9,943,000 | 9,571,000 |
The following additional information is found in the tax working papers:
Dividends were from Hager Corporation, a less-than-20%-owned domestic corporation.
Other income includes key officer life insurance proceeds of $200,000.
The capital gain resulted from the sale of Bulldog Enterprises stock. Dawson, Inc. purchased the Bulldog Enterprises stock on 3/2/2011 for $24,000. You can assume basis was reported to the IRS on a 1099-B.
The loss due to worthlessness of stock was due to the bankruptcy of CLL, Inc. The stock was purchased March 5, 2009. This also was reported on a 1099-B.
Purchases (for COGS) were $3,380,000.
Retained earnings are unappropriated.
All contributions were paid in cash during the current year to Great Falls University.
State income taxes for 2018 were $3,000 (included in the state, local, and payroll tax expense).
Actual bad debts for the year were $5,500.
The actual warranty outlay for the year was $7,250.
For tax purposes, depreciation amounted to $950,000.
Dawson, Inc. declared a $1,345,000 cash dividend during the current year.
During 2018, Dawson, Inc. made estimated tax payments of $80,000 each quarter to the IRS.
Salaries and wages includes $200,000 paid to Mr. Johns and Ms. Leigh ($100,000 each).
| Income Statement | |||
| Income |
|
|
|
| Gross sales |
|
| 6,900,000 |
| Sales returns and allowances |
|
| (80,000) |
| Net sales |
|
| 6,820,000 |
| Cost of goods sold |
|
| (3,100,000) |
| Gross profit |
|
| 3,720,000 |
| Dividends |
|
| 18,000 |
| Interest income |
|
|
|
| State of Montana bonds | 15,000 |
|
|
| Certificates of deposit | 27,500 |
| 42,500 |
| Gain on sales of stock |
|
| 8,000 |
| Loss due to stock worthlessness |
|
| (27,000) |
| Other income |
|
| 226,500 |
| Total income |
|
| 3,988,000 |
|
|
|
|
|
| Expenses |
|
|
|
| Salaries and wages |
| 805,000 |
|
| Taxes (state, local, and payroll) |
| 40,000 |
|
| Interest expense |
|
|
|
| Loan to purchase Montana bonds | 4,000 |
|
|
| Funds borrowed for working capital | 22,000 | 26,000 |
|
| Warranty expense |
| 9,300 |
|
| Depreciation* |
| 875,000 |
|
| Charitable contributions |
| 88,000 |
|
| Premiums on key-man life insurance policies |
| 10,000 |
|
| Bad debt expense |
| 9,800 |
|
| Other expenses |
| 435,000 |
|
| Total expenses |
|
| (2,298,100) |
| Net income before taxes |
|
| 1,689,900 |
| Federal income tax |
|
| (333,680) |
| Net income per books |
|
| 1,356,220 |
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Contemporary Mathematics
Authors: OpenStax
1st Edition
1711470554, 978-1711470559
