Required: show how to calculate and filling out Excel sheet

2-48 During 2020, Lisa Cutter and Jeff McMullen decided they would like to start their own gourmet hamburger business. Lisa and Jeff believed that the public would love the recipes used by Lisa's mom, Tina Woodbrook. They also thought that they had the necessary experience to enter this business, as Jeff currently owned a fast-food franchise business while Lisa had experience operating a small bakery. After doing their own market research, they established Slattery's Inc., which was incorporated on February 1, 2021. The company's address is 5432 Partridge Pl., Tulsa, Oklahoma 74105, and its employer identification number is 88-7654321. The company started modestly. After refurbishing an old gas station that it had purchased, the company opened for business on February 25, 2021. Shortly after business began, however, business boomed. By the close of 2021, the company had established two other locations. Slattery's has three shareholders who own stock as follows: Shareholder Shares Lisa Cutter 500 Jeff McMullen. 200 Tina Woodbrook (Lisa's mother) 300 Total outstanding 1,000 Slattery's was formed on February 1, 2021. On that date, shareholders made con- tributions as follows: Lisa Cutter contributed $30,000 in cash and 200 shares of MND stock, a pub- licly held company, which had a fair market value of $20,000. Lisa had pur- chased the MND stock on October 3, 2016, for $8,000. Jeff McMullen contributed equipment worth $20,000 which he had used in his own business until he contributed it. The equipment's basis was $48,000 (orig. inal cost in February 2019, $100,000; depreciation using MACRS accelerated percentages for five-year property, $52,000). Tina Woodbrook contributed $30,000 in cash. The company is on the accrual basis and has chosen to use the calendar year for tax purposes. The corporation's adjusted trial balance for financial accounting purpos- es reveals the following information: The company has provided additional information below. The company took a physical count of inventory on December 31, 2021. On that date, it was determined that ending inventory was $16,000. This ending inventory must be recorded on the company's books and will result in a reduc- tion in cost of goods sold. On February 9, 2021, the corporation purchased an old gas station for $25,000 to house the restaurant. Of the $25,000 purchase price, $10,000 was allocat- ed to the land while $15,000 was allocated to the building. Prior to opening, the old gas station was renovated. Improvements to the structure were made during February at a cost of $55,000. Assume the building and improvements are 39-year property. The legal costs were for work done by Slattery's attorney in February for drafting the articles of incorporation and by-laws. Accounting fees that were paid in May were for setting up the books and the accounting system. Miscellaneous expens- es included a $100 fee paid in February to the State of Oklahoma to incorporate. The MND stock was sold for $38,000 on April 3, 2021. Shortly before the sale, MND had declared and paid a dividend. Slattery's received $2,000 on April 1, 2021. MND was incorporated in Delaware. The corporation purchased refrigeration equipment (7-year property) on February 15, 2021, for $15,000. (Ignore bonus depreciation.) Slattery's has elected not to use the limited expensing provisions of Code $ 179. In addition, it claimed the maximum depreciation with respect to all other assets. Any other elections required to minimize the corporation's tax liability were made. Lisa Cutter (Social Security no. 444-33-2222) is president of the corpora- tion and spends 90% of her working time in the business. Salary expense in- cludes her salary of $60,000 and an accrued bonus to her as of December 31 of $15,000. No other officers received compensation. The key employee life insurance policy covers Lisa's life, and the corporation is the beneficiary. The company paid estimated income taxes during the year of $48,000 ($12,000 on each installment due date). For simplicity's sake, in completing the tax re- turn do not adjust the books to reflect the actual tax due. Required: Prepare Form 1120 and other appropriate forms, schedules, and elections for Slattery's. On separate schedule(s), show all calculations used to determine all reported amounts except those for which the source is obvious or which are shown on a formal schedule to be filed with the return. The company has provided additional information below. The company took a physical count of inventory on December 31, 2021. On that date, it was determined that ending inventory was $16,000. This ending inventory must be recorded on the company's books and will result in a reduc- tion in cost of goods sold. On February 9, 2021, the corporation purchased an old gas station for $25,000 to house the restaurant. Of the $25,000 purchase price, $10,000 was allocat- ed to the land while $15,000 was allocated to the building. Prior to opening, the old gas station was renovated. Improvements to the structure were made during February at a cost of $55,000. Assume the building and improvements are 39-year property. The legal costs were for work done by Slattery's attorney in February for drafting the articles of incorporation and by-laws. Accounting fees that were paid in May were for setting up the books and the accounting system. Miscellaneous expens- es included a $100 fee paid in February to the State of Oklahoma to incorporate. The MND stock was sold for $38,000 on April 3, 2021. Shortly before the sale, MND had declared and paid a dividend. Slattery's received $2,000 on April 1, 2021. MND was incorporated in Delaware. The corporation purchased refrigeration equipment (7-year property) on February 15, 2021, for $15,000. (Ignore bonus depreciation.) Slattery's has elected not to use the limited expensing provisions of Code $ 179. In addition, it claimed the maximum depreciation with respect to all other assets. Any other elections required to minimize the corporation's tax liability were made. II. After making these entries you should have an adjusted trial balance. Then look at the income statement tab and the far-right columns that say Schedule M-1. Enter in Schedule M-1 columns (debit or credit) any difference between GAAP rules and tax rules. See my instructions for more detail. Look over all the bullet points in the problem and make any other M-1 adjustments. This will require some knowledge of tax rules that we have discussed in Ch. 1. These are one-legged entries in a sense. They change only one account. There is a db or st to an expense account and the other side is to Net Income at the bottom. You will need these entries when you do the tax return for Sch. M-1 on page 4. M-1 entries are not given to the client to book, because the books are not wrong. The books are GAAP based. We are just converting the income statement to a tax-based income statement and calculating taxable income. III. After you make all M-1 adjustments you will have a Net Income number at the bottom. This is line 28 of the tax return. From this number subtract the Dividend Received Deduction (which we learned how to calculate in Ch. 1). The result is Taxable Income. Multiply that by 21% to get the tax. Subtract the estimated taxes they have paid in - $48,000, to get what they owe or overpaid. IV. Make a tax accrual adjusting entry for the amount they owe or overpaid in step 3. Only two accounts are involved: Federal Income Tax expense (currently $48,000, which is only the estimates paid) and Accrued Federal Income Tax (zero on the books). This is an adjusting entry and is given to the client. Balance sheet: Dec 31, 2020 TRIAL BALANCE Debit Credit ADJUSTMENTS Debit Credit ADJUSTED TRIAL BALANCE Debit Credit Account Name 229,200 0 35,000 10,000 15,000 55,000 O O O O O O 0 229,200 0 0 0 35,000 0 10,000 0 15,000 0 55,000 0 0 0 0 9,000 0 0 0 0 0 9,000 0 0 Cash Inventory Equipment Land Building Building Improvements Accumulated Depreciation - Bldg. & Impr. Accumulated Depreciation - Equipment Organization Expense Accumulated Amortization - Org Exp. Accounts Payable Salaries Payable Notes Payable Accrued State Tax Payable Accrued Federal Income Tax Capital stock Retained earnings (prior) Dividends paid Current earnings Totals 45,000 20,000 93,000 8,000 0 0 0 0 0 0 0 0 45,000 20,000 93,000 8,000 0 100,000 0 0 69,200 344,200 100,000 OOOOOO OOO OO 0 $344,200 69,200 344,200 344,200 TRIAL BALANCE Debit Credit ADJUSTMENTS Debit Credit TRIAL BALANCE Debit Credit SCHEDULE M-1 Debit Credit INCOME/ EXPENSE Debit Credit Account Name 600,000 600,000 600,000 300,000 3,000 8,600 0 300,000 3,000 8,600 0 17,600 9,000 300,000 3,000 8,600 0 17,600 17.600 9,000 48,000 9,000 Sales Purchases Accounting expenses | Advertising Amortization of Org Exp. Charitable contributions Depreciation Federal income taxes Insurance Tinsurance Interest expense Key person life insurance premium Legal expenses Miscellaneous expenses Officers' salaries Payroll taxes Repairs Salaries State income taxes Gain of Sale of MND stock Dividend income Totals Net Income 9,000 48,000 9,000 200 800 5,500 2,100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 n n 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 200 200 800 200 5,500 2,100 0 12,500 6,500 120,000 8,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 48,000 9,000 200 gon 800 5,500 2,100 12,500 6,500 120,000 8,000 12,500 6,500 120,000 8,000 18.000 2.000 18,000 2,000 18.000 2,000 620,000 620.000 620,000 550,800 69.200 620,000 550,800 69,200 620,000 550,800 69,200 620,000 0 0 620,000 0 620,000 0 620,000 Slattery's BS Slattery's IS 2-48 During 2020, Lisa Cutter and Jeff McMullen decided they would like to start their own gourmet hamburger business. Lisa and Jeff believed that the public would love the recipes used by Lisa's mom, Tina Woodbrook. They also thought that they had the necessary experience to enter this business, as Jeff currently owned a fast-food franchise business while Lisa had experience operating a small bakery. After doing their own market research, they established Slattery's Inc., which was incorporated on February 1, 2021. The company's address is 5432 Partridge Pl., Tulsa, Oklahoma 74105, and its employer identification number is 88-7654321. The company started modestly. After refurbishing an old gas station that it had purchased, the company opened for business on February 25, 2021. Shortly after business began, however, business boomed. By the close of 2021, the company had established two other locations. Slattery's has three shareholders who own stock as follows: Shareholder Shares Lisa Cutter 500 Jeff McMullen. 200 Tina Woodbrook (Lisa's mother) 300 Total outstanding 1,000 Slattery's was formed on February 1, 2021. On that date, shareholders made con- tributions as follows: Lisa Cutter contributed $30,000 in cash and 200 shares of MND stock, a pub- licly held company, which had a fair market value of $20,000. Lisa had pur- chased the MND stock on October 3, 2016, for $8,000. Jeff McMullen contributed equipment worth $20,000 which he had used in his own business until he contributed it. The equipment's basis was $48,000 (orig. inal cost in February 2019, $100,000; depreciation using MACRS accelerated percentages for five-year property, $52,000). Tina Woodbrook contributed $30,000 in cash. The company is on the accrual basis and has chosen to use the calendar year for tax purposes. The corporation's adjusted trial balance for financial accounting purpos- es reveals the following information: The company has provided additional information below. The company took a physical count of inventory on December 31, 2021. On that date, it was determined that ending inventory was $16,000. This ending inventory must be recorded on the company's books and will result in a reduc- tion in cost of goods sold. On February 9, 2021, the corporation purchased an old gas station for $25,000 to house the restaurant. Of the $25,000 purchase price, $10,000 was allocat- ed to the land while $15,000 was allocated to the building. Prior to opening, the old gas station was renovated. Improvements to the structure were made during February at a cost of $55,000. Assume the building and improvements are 39-year property. The legal costs were for work done by Slattery's attorney in February for drafting the articles of incorporation and by-laws. Accounting fees that were paid in May were for setting up the books and the accounting system. Miscellaneous expens- es included a $100 fee paid in February to the State of Oklahoma to incorporate. The MND stock was sold for $38,000 on April 3, 2021. Shortly before the sale, MND had declared and paid a dividend. Slattery's received $2,000 on April 1, 2021. MND was incorporated in Delaware. The corporation purchased refrigeration equipment (7-year property) on February 15, 2021, for $15,000. (Ignore bonus depreciation.) Slattery's has elected not to use the limited expensing provisions of Code $ 179. In addition, it claimed the maximum depreciation with respect to all other assets. Any other elections required to minimize the corporation's tax liability were made. Lisa Cutter (Social Security no. 444-33-2222) is president of the corpora- tion and spends 90% of her working time in the business. Salary expense in- cludes her salary of $60,000 and an accrued bonus to her as of December 31 of $15,000. No other officers received compensation. The key employee life insurance policy covers Lisa's life, and the corporation is the beneficiary. The company paid estimated income taxes during the year of $48,000 ($12,000 on each installment due date). For simplicity's sake, in completing the tax re- turn do not adjust the books to reflect the actual tax due. Required: Prepare Form 1120 and other appropriate forms, schedules, and elections for Slattery's. On separate schedule(s), show all calculations used to determine all reported amounts except those for which the source is obvious or which are shown on a formal schedule to be filed with the return. The company has provided additional information below. The company took a physical count of inventory on December 31, 2021. On that date, it was determined that ending inventory was $16,000. This ending inventory must be recorded on the company's books and will result in a reduc- tion in cost of goods sold. On February 9, 2021, the corporation purchased an old gas station for $25,000 to house the restaurant. Of the $25,000 purchase price, $10,000 was allocat- ed to the land while $15,000 was allocated to the building. Prior to opening, the old gas station was renovated. Improvements to the structure were made during February at a cost of $55,000. Assume the building and improvements are 39-year property. The legal costs were for work done by Slattery's attorney in February for drafting the articles of incorporation and by-laws. Accounting fees that were paid in May were for setting up the books and the accounting system. Miscellaneous expens- es included a $100 fee paid in February to the State of Oklahoma to incorporate. The MND stock was sold for $38,000 on April 3, 2021. Shortly before the sale, MND had declared and paid a dividend. Slattery's received $2,000 on April 1, 2021. MND was incorporated in Delaware. The corporation purchased refrigeration equipment (7-year property) on February 15, 2021, for $15,000. (Ignore bonus depreciation.) Slattery's has elected not to use the limited expensing provisions of Code $ 179. In addition, it claimed the maximum depreciation with respect to all other assets. Any other elections required to minimize the corporation's tax liability were made. II. After making these entries you should have an adjusted trial balance. Then look at the income statement tab and the far-right columns that say Schedule M-1. Enter in Schedule M-1 columns (debit or credit) any difference between GAAP rules and tax rules. See my instructions for more detail. Look over all the bullet points in the problem and make any other M-1 adjustments. This will require some knowledge of tax rules that we have discussed in Ch. 1. These are one-legged entries in a sense. They change only one account. There is a db or st to an expense account and the other side is to Net Income at the bottom. You will need these entries when you do the tax return for Sch. M-1 on page 4. M-1 entries are not given to the client to book, because the books are not wrong. The books are GAAP based. We are just converting the income statement to a tax-based income statement and calculating taxable income. III. After you make all M-1 adjustments you will have a Net Income number at the bottom. This is line 28 of the tax return. From this number subtract the Dividend Received Deduction (which we learned how to calculate in Ch. 1). The result is Taxable Income. Multiply that by 21% to get the tax. Subtract the estimated taxes they have paid in - $48,000, to get what they owe or overpaid. IV. Make a tax accrual adjusting entry for the amount they owe or overpaid in step 3. Only two accounts are involved: Federal Income Tax expense (currently $48,000, which is only the estimates paid) and Accrued Federal Income Tax (zero on the books). This is an adjusting entry and is given to the client. Balance sheet: Dec 31, 2020 TRIAL BALANCE Debit Credit ADJUSTMENTS Debit Credit ADJUSTED TRIAL BALANCE Debit Credit Account Name 229,200 0 35,000 10,000 15,000 55,000 O O O O O O 0 229,200 0 0 0 35,000 0 10,000 0 15,000 0 55,000 0 0 0 0 9,000 0 0 0 0 0 9,000 0 0 Cash Inventory Equipment Land Building Building Improvements Accumulated Depreciation - Bldg. & Impr. Accumulated Depreciation - Equipment Organization Expense Accumulated Amortization - Org Exp. Accounts Payable Salaries Payable Notes Payable Accrued State Tax Payable Accrued Federal Income Tax Capital stock Retained earnings (prior) Dividends paid Current earnings Totals 45,000 20,000 93,000 8,000 0 0 0 0 0 0 0 0 45,000 20,000 93,000 8,000 0 100,000 0 0 69,200 344,200 100,000 OOOOOO OOO OO 0 $344,200 69,200 344,200 344,200 TRIAL BALANCE Debit Credit ADJUSTMENTS Debit Credit TRIAL BALANCE Debit Credit SCHEDULE M-1 Debit Credit INCOME/ EXPENSE Debit Credit Account Name 600,000 600,000 600,000 300,000 3,000 8,600 0 300,000 3,000 8,600 0 17,600 9,000 300,000 3,000 8,600 0 17,600 17.600 9,000 48,000 9,000 Sales Purchases Accounting expenses | Advertising Amortization of Org Exp. Charitable contributions Depreciation Federal income taxes Insurance Tinsurance Interest expense Key person life insurance premium Legal expenses Miscellaneous expenses Officers' salaries Payroll taxes Repairs Salaries State income taxes Gain of Sale of MND stock Dividend income Totals Net Income 9,000 48,000 9,000 200 800 5,500 2,100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 n n 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 200 200 800 200 5,500 2,100 0 12,500 6,500 120,000 8,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 48,000 9,000 200 gon 800 5,500 2,100 12,500 6,500 120,000 8,000 12,500 6,500 120,000 8,000 18.000 2.000 18,000 2,000 18.000 2,000 620,000 620.000 620,000 550,800 69.200 620,000 550,800 69,200 620,000 550,800 69,200 620,000 0 0 620,000 0 620,000 0 620,000 Slattery's BS Slattery's IS