Problem 3-1 (Algorithmic)

Schedule C (LO 3.1, 3.3, 3.5, 3.7)

Scott Butterfield is self-employed as a CPA. He uses the cash method of accounting, and his Social Security number is 644-47-7833. His principal business code is 541211. Scott's CPA practice is located 678 Third Street, Riverside, CA 92860. Scott's income statement for the year shows the following:

Scott also mentioned the following:

- The expenses for dues and subscriptions were his country club membership dues for this year.

- Of the charitable contributions, $50 were made to a political action committee.

- Scott does not generate income from the sales of goods and therefore does not record supplies and wages as part of cost of goods sold.

- Scott placed a business auto service on January 1, 2016 and drove it 4,586 miles for business, 2,752 miles for commuting and 5,503 miles for nonbusiness purposes. His wife has a car for personal use.

Complete Schedule C for Scott showing Scott's net taxable profit from self-employment. Assume Scott has evidence to support his deductions. If required, only use the minus sign to indicate a net loss. When required, round amounts to nearest dollar.

Income Statement Scott Butterfield, CPA Income Statement 12/31/2019 Current Period Prior Period 1/1/2019 to 12/31/2019 1/1/2018 to 12/31/2018 REVENUES Tax Services $190,000 $72,154 Accounting Services 19,000 50,256 Other Consulting Services 41,800 7,690 TOTAL REVENUES 250,800 130,100 COST OF SERVICES Salaries 38,000 29,400 Payroll Taxes 2,387 2,275 Supplies 300 1,225 TOTAL COST OF SERVICES 40,687 32,900 GROSS PROFIT (LOSS) 210,113 97,200 OPERATING EXPENSES Advertising and Promotion 2,000 - Business Licenses and Permits 620 250 Charitable Contributions 450 250 Continuing Education 1,500 Dues and Subscriptions 1,640 3,500 Insurance 11,400 870 Meals and Entertainment 8,550 5,400 Office Expense 3,800 - Postage and Delivery 85 Printing and Reproduction 1,900 Office Rent 5,700 13,800 Travel 7,600 750 Utilities 2,280 2,724 TOTAL OPERATING EXPENSES 47,475 27,544 NET INCOME (LOSS) $162,638 $69,656 SCHEDULE C (Form 1040 or 1040-SR) OMB No. 1545-0074 Profit or Loss From Business (Sole Proprietorship) 2019 Go to www.irs.gov/Schedule for instructions and the latest information. Attachment Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships generally must Sequence No. 09 file Form 1065. Department of the Treasury Internal Revenue Service (99) Name of proprietor Scott Butterfield Social security number (SSN) 644-47-7833 B Enter code from instructions 541211 Principal business or profession, including product or service (see instructions) Accounting Services Business name. If no separate business name, leave blank. Scott Butterfield, CPA D Employer ID number (EIN), (see instr.) .) E Business address (including suite or room no.) 678 Peso Drive F City, town or post office, state, and ZIP code La Mesa, CA 92041 Accounting method: (1) Cash (2) Accrual (3) Other (specify) Did you "materially participate in the operation of this business during 2019? If "No," see instructions for limit on losses If you started or acquired this business during 2019, check here ... Did you make any payments in 2019 that would require you to file Form(s) 1099? (see instructions) G Yes O NO H I Yes No * Yes J If "Yes," did you or will you file required Forms 1099?...... No Part I Income 1 Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the "Statutory employee" box on that form was checked. 1 2 Returns and allowances 2 3 Subtract line 2 from line 1.. 3 4 Cost of goods sold (from line 42). 4 5 Gross profit. Subtract line 4 from line 3 5 6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions). 6 7 Gross income. Add lines 5 and 6. 7 18 19 20a Part II Expenses. Enter expenses for business use of your home only on line 30. 8 Advertising ........... 8 18 Office expense (see instructions) .. 9 Car and truck expenses (see 19 Pension and profit-sharing plans... instructions)..... 9 20 Rent or lease (see instructions): .... ): 10 Commissions and fees ..... 10 Vehicles, machinery, and equipment .. 11 Contract labor (see instructions) 11 b Other business property. 12 Depletion.. Depletion .......... 12 21 Repairs and maintenance ......... 13 Depreciation and section 179 22 Supplies (not included in Part III) ... expense deduction (not included in 23 Taxes and licenses.. Part III) 20b 21 22 23 13 24 Travel and meals: (see instructions)... 14 Employee benefit programs (other than on line 19)..... a Travel.... 24a 14 b Deductible meals 15 (see instructions)... 24b 15 Insurance (other than health) ) 16 Interest (see instructions): a Mortgage (paid to banks, etc.) 25 Utilities. 25 16a 26 Wages (less employment credits).. 26 b Other ....... 16b 27a Other expenses (from line 48)...... 27a 17 Legal and professional services 17 b Reserved for future use....... 27b 28 Total expenses before expenses for business use of home. Add lines 8 through 27a . 28 29 Tentative profit or loss). Subtract line 28 from line 7. . 29 30 Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method (see instructions). Simplified method filers only: enter the total square footage of: (a) your home: and (b) the part of your home used for business: Use the Simplified Method Worksheet in the instructions to figure the amount to enter on line 30.... 30 31 Net profit or (loss). Subtract line 30 from line 29. If a profit, enter on both Schedule 1 (Form 1040 or 1040-SR), line 3 (or Form 1040-NR, line 13) and on Schedule SE, line 2. (If you checked the box on line 1, see instructions). Estates and trusts, 31 enter } on Form 1041, line 3. If a loss, you must go to line 32. 32 32a 0 All investment is If you have a loss, check the box that describes your investment in this activity (see instructions). If you checked 32a, enter the loss on both Schedule 1 (Form 1040 or 1040-SR), line 3 (or Form 1040-NR, line 13) and on Schedule SE, line 2. (If you checked the box on line 1, see the line 31 instructions). Estates and trusts, enter on Form 1041, line 3. If you checked 32b, you must attach Form 6198. Your loss may be limited. } at risk. 32b o Some investment is not at risk. For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11334P Schedule C (Form 1040 or 1040-SR) 2019 Schedule C (Form 1040 or 1040-SR) 2019 Part III Cost of Goods Sold (see instructions) 33 Method(s) used to value closing inventory: O Cost b Lower of cost or market Other (attach explanation) 34 Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If "Yes," attach explanation . Yes No 35 Inventory at beginning of year. If different from last year's closing inventory, attach explanation .... 35 36 Purchases less cost of items withdrawn for personal use ... 36 37 Cost of labor. Do not include any amounts paid to yourself. 37 38 Materials and supplies 38 39 Other costs 39 40 Add lines 35 through 39. 40 41 Inventory at end of year . 41 42 Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4... 42 Part IV Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file Form 4562. 43 When did you place your vehicle in service for business purposes? (month, day, year) 44 Of the total number of miles you drove your vehicle during 2019, enter the number of miles you used your vehicle for: a Business b Commuting (see instructions) c Other 45 Was your vehicle available for personal use during off-duty hours? 46 Do you (or your spouse) have another vehicle available for personal use? 47a Do you have evidence to support your deduction? b If "Yes," is the evidence written? Part V Other Expenses. List below business expenses not included on lines 8-26 or line 30. 48 Total other expenses. Enter here and on line 27a 48 Schedule C (Form 1040 or 1040-SR) 2019