Smith & Company, CPAs, has been engaged to prepare Form 1120, U.S. Corporation Income Tax Return, for Lilac Corp. ("Lilac"). As part of the engagement, the year 9 purchases of property, plant and equipment were reviewed to determine whether the tax basis of each fixed asset acquired in year 9 is accurately reflected on the tax depreciation worksheet shown in the Tax Depreciation Worksheet tab. Documentation of the purchases can be found in the Resources tab. After an initial review of the documentation, a staff associate prepared a draft letter to Lilac's controller. John Park, the partner in charge of the Lilac engagement, has asked you to review the documentation and revise the letter, correcting any errors.

To revise the document, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the document, select [Original text] from the list.

Smith & Company, CPAs 62 Main Street Beachside, NJ 09999

February 19, year 10

Michael West Controller Lilac Corp. 463 Second Avenue Beachside, NJ 09999

Dear Michael:

We have completed our review of the year 9 property, plant and equipment purchases as detailed in the tax depreciation worksheet that you provided and have the following comments.

Parcel of land at Wayside Street, Greensburg

The tax basis of the land located on Wayside Street is recorded on the tax depreciation schedule at $72,563. We have reviewed the eminent domain letter from the Township of Greensburg's purchase of the Parkway Avenue property and the HUD-1 settlement statement for the purchase of the new property on Wayside Street.

In accordance with IRC section 1041, the new property is correctly recorded for tax purposes at $72,563.

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[Original text] In accordance with IRC section 1041, the new property is correctly recorded for tax purposes at $72,563.

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In accordance with IRC Section 1041, the new property should be recorded at $70,000 for tax purposes.

In accordance with IRC Section 1033, the new property should be recorded at $72,563 for tax purposes.

In accordance with IRC Section 1033, the new property should be recorded at $63,763 for tax purposes.

In accordance with IRC Section 1033, the new property should be recorded at $71,800 for tax purposes.

In accordance with IRC Section 1041, the new property should be recorded at $63,763 for tax purpose.