Schedule C Preparation

Please use the following fact pattern described on the following pages to "complete this" two part question for the 2018 tax year including: (i) determining the total cost recovery for the business for the tax year (20 points), (ii) completing the Schedule C of Form 1040 for the business (50 points). Please state any assumptions you make as you complete the problem as part of your work.

Your responses must be hand-written. Inasmuch as partial credit will be awarded, you are strongly encouraged to carefully write out and label each step of your calculations in the space provided on the "answer sheet".

Please scan all 5 "pages" of this Part II and submit as a PDF file prior to the deadline for the take-home portion.

General Information: Bob's Building, LLC (hereinafter "BB") is a company that provides training and supplies to general contractors and other individuals in the building industry. BB began its operations in 2015. The company is wholly owned by Robert Villa(SSN 132-54-9876) and, as such, the business files its taxes as a disregarded entity and uses the cash method of accounting. BB is fully compliant in its FICA tax obligations with respect to its employees and Robert.

Assets& Depreciation: BB had $100,000 in MACRS depreciation on its furnishings and equipment in its corporate headquarters, which were placed into service prior to 2018 and kept in the business the entire tax year. BB anticipates increasing its revenues substantially in future years, particularly 5 years from now when a current distribution agreement for its training materials expires. Consequently, BB does not want to take bonus depreciation on any newly acquired assets with class lives longer than 5 years, but bonus depreciation should be taken on any assets with class lives of 5 years or less that qualify.

BB purchased and placed into service the following business assets in 2018. BB purchased an inventory management system that consists of computer hardware costing $500,000 and an order processing machine that cost $2,800,000. These assets were placed into service on March 1st. BB also traded in its old delivery truck for a new delivery truck (both 5-year class life assets) on November 1^st and immediately placed the new truck into service. The new truck cost $35,000, but BB received $10,000 of credit on the trade-in of the old vehicle and paid the remaining $25,000 in cash. The old vehicle was a 5 year asset that was acquired in the first quarter of 2016 and its original basis was $30,000. BB used the mid-quarter convention in 2016 and the total tax depreciation on the old vehicle from prior years was $18,300.

Income: In 2018, the company had $4,750,000 in net revenues for the tax year. BB's beginning accounts receivable were $245,000 and its ending accounts receivable were $210,000. The company also had $45,000 in returns and allowances, which accounts were maintained in accordance with tax principles. The company's beginning inventory was $850,000 and its ending inventory was $900,000. BB made purchases in the amount of $1,395,000.

Employee Expenses: BB has 6 full time employees in addition to Robert. The company has three warehouse workers that work on the product sales side. The company also has a team that handles the production of the training materials including a production manager, post production director, and a chief of marketing and sales. Robertworks as the President and CEO and also the primary talent in all of the training materials. Robert doesn't take a base salary since he's paid out of the profits of the business, but he does receive health insurance. The salaries and fringe benefits are listed below for each employee (all salaries were paid during the year via direct deposit into the employee's bank accounts):

Name Position Base Salary Health Ins. FICA Tax (employer portion)

1. Betty A. Warehouse - Logistics $50,000 $10,000 $3,825

2. Frank K. Warehouse - Purchasing $50,000 $10,000 $3,825

3. Bob B. Warehouse - Processing $50,000 $10,000 $3,825

4. Sheila C. Production Mgr. $80,000 $10,000 $6,120

5. Samuel W. Post Production $65,000 $10,000 $4,973

6. William Z. Chief of Mkt & Sales $95,000 $10,000 $7,268

7. Robert V. President/CEO/Owner $0 $10,000 $0

Other Expenses: Rent for BB's office, warehouse, and production facility is $30,000 per month paid on the first day of each month. Robert pays this rent via an automatic monthly charge to a business credit card and the credit card balance is paid off when due 50 days later by check drawn on the company's bank account. BB also incurred the following expenses, all of which were paid for using company checks: (i) Advertising $75,000, (ii) Client Development Meals $5,000, (iv) OSHA Fine $25,000, (v) Liability Insurance $25,000, (vi) Machine Repairs $100,000.

Part II: Please Provide your Cost Recovery Calculations on this Page (20 Points)