Tax Related Question:

You are a new staff accountant at Kevin Malones CPAs and Advisors. The Managing Partner, Kevin Malone, is swamped with work and passes off a project to you.

The project is for Vance Refrigeration, Inc. Vance is a growing refrigerator manufacturing company. Kevin would like you to prepare the Corporate Tax Return (Form 1120, including schedules C, J, K, L, M-1 and M-2). He would also like you to prepare the following supplementary schedules and forms: Schedule D, Form 1125-A, Form 1125-E, Form 4562 and Form 4797). Attach any additional detail from the schedules listed where necessary on an additional sheet of paper. Be sure you are using the 2017 Forms.

Vance Refridgeration, Inc. incorporated on Dec. 31, 2013 and began its operations on January 2, 2014. Vances Employer Identification Number (EIN) is 11-2233444. Vance Refrigeration is located at 1234 Scranton Strangler Road, Scranton, PA 18505.

Kevin gave you Vances Balance Sheet and Income Statement for 2017. He also provided you with the following facts:

Vance made estimated tax payments in 2017 in the amount of $770,000.

Enter this amount on Pg. 1, Line 32 of Form 1120

Enter this amount on Pg. 3, Lines 13, 15, 18, and 21 of Form 1120

Vance uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should be reflected on 1125-A. No other costs or expenses are allocated to Costs of Goods Sold. NOTE: Assume Vance is exempt from the uniform capitalization (UNICAP) rules.

For tax, Vance uses the direct write off method of deducting bad debts. For book, Vance uses an allowance for doubtful accounts. During 2017, Vance charged $34,000 to the allowance account, which represented actual writeoffs for 2017.

For book, Vance uses straight-line depreciation over the useful lives of assets as follows: building, 50 years; equipment, ten years; and delivery trucks, five years. Vance takes a half-years depreciation in the year of acquisition and the year of disposition and assumes no salvage value.

For tax, all assets are MACRS property as follows: building, 39-year nonresidential real property; equipment, seven year property; and delivery trucks, five year property. Vance acquired the building for $1,000,000 and placed it in service on January 1, 2014. Vance acquired the delivery trucks for $100,000 and placed them in service on July 18, 2015. The delivery trucks are not listed property and are not subject to the limitation on luxury automobiles. Vance acquired two pieces of equipment for $200,000 (Equipment 1) and $400,000 (Equipment 2) and placed them in service on January 1, 2014. Vance did not make the expensing election under Sec. 179 or take bonus depreciation on any property acquired before 2017. When applicable, use published IRS depreciation tables to compute 2017 depreciation (also in Appendix C of your textbook).

On November 11, 2017 Vance sold the Equipment 1 property for $230,000 (which originally cost $200,000 on January 1, 2014).Sale of Equipment 1

Selling Price $230,000

Cost $200,000

Minus: Accum Depr. (125,030)

Adjusted basis (74,970)

Gain recognized $155,030

*Kevin remembers something about part of this gain being subject to depreciation recapture and some of it being 1231 gain.But, he asks you to look into it

*Kevin also remembers that the calculation of depreciation on an asset that is sold during the year must apply a certain convention like mid month, mid year, mid quarter he really isnt sure.He thinks you may know what to do.

*$125,030 is the amount of accumulated tax depreciation on Equipment 1 at the time of the transaction (which includes the tax depreciation in the current year)

Vance had no Sec. 1231 losses from prior years. In a separate transaction on October 1, 2017, Vance acquired and placed in service a piece of new equipment costing $500,000. Assume the Sale of Equipment 1 and this new equipment acquisition do not qualify for a like kind exchange. The new equipment is seven year property. Vance elects to use Section 179 expensing for the new equipment for the entire cost of the property. When applicable, use published IRS depreciation tables to compute 2017 depreciation (also in Appendix C of your textbook).

Vance sold 500 shares of MSPC Corp. common stock on August 1, 2017 for $125,000. Vance acquired the stock for $95,000 on November 19, 2016. Vance also sold 35 shares of Prison Mike Corp. common stock on July 18, 2017 for $110,000. Vance acquired the stock on January 1, 2013 for $117,000. Vance has a $10,000 capital loss carryover from 2016. These transactions were not reported to the corporation on Form 1099-B.

Vance Corporation had an underpayment of estimated tax penalty for 2017. The penalty amount is $4,087. Omit Form 2220 from your filing.

Vances tax rate in 2017 was 34%. For simplicity, just multiply the taxable income by the top marginal rate of 34%.

Vances received dividends from, a taxable, domestic corporation (see income statement), the stock of which Vance owns less than 20%. NOTE: the Dividends Received Deduction percentage is different in 2017 than in 2018. Please use the 2017 percentages for dividends received in 2017.

Vance paid $85,000 cash dividends to its shareholders during the year and charged the payment directly to retained earnings.

Vance is not entitled to any credits.

Ignore USPAD, AMT and accumulated earnings tax (youre welcome)

Ignore any financial statement impact of any underpayment penalties incurred on the tax return.

The officers of Vance Refrigeration are as follows: Bob Vance, 111-11-1111; Phyllis Vance, 222-22-2222; Ryan Howard, 333-33-3333. Each employee donates 100% of their time to the business. Bob owns 50% of the common stock and receives a $300,000 salary. Phyllis and Ryan each own 25% of the company and each receive a salary $126,250.

Kevin provided you with some guidance on filling out certain forms:Form 1125-A

Line 9 (a): Check (ii)

Line 9 (b), (c), (d): Not applicable

Line 9 (e), (f): No

Form 1120, Schedule K

1b: Accrual

2a: 335222

2b: Manufacturing

2c: Refrigerator sales

3: No

4a: No

4b: Yes, Omit Schedule G

5a: No

5b: No

6-7: No

8: Do not check box

9: Fill in the correct amount

10: 3

11: Do not check box

12: N/A

13-14: No

15a: No

15b: Do not check box

16-19: No

Vance Refridgeration, Inc.- Income Statement 2017
Sales		$ 9,000,000.00
Returns		$ (712,500.00)
Net Sales		$ 8,287,500.00
Beginning Inventory	$ 2,125,000.00
Purchases	$ 4,675,000.00
Ending Inventory	$ (2,975,000.00)
Cost of Goods Sold		$ (3,825,000.00)
Gross Profit		$ 4,462,500.00
Expenses:
Utilities	$ 61,180.00
Repairs	$ 17,700.00
Depreciation	$ 115,000.00
General Insurance	$ 46,750.00
Officers' Compensation	$ 552,500.00
Other Salaries	$ 340,000.00
Legal and accounting fees	$ 42,500.00
Bad Debt Expense	$ 38,250.00
Advertising	$ 40,800.00
Charitable Contributions	$ 25,500.00
Payroll Taxes	$ 52,700.00
Net premium- Officers' Life Insurance	$ 25,500.00
Interest Expense	$ 178,500.00
Total Expenses		$ (1,536,880.00)
Interest on State Government bonds		$ 4,250.00
Gain on Sale of Equipment		$ 90,000.00
Net gain on stock sales		$ 23,000.00
Dividend Income		$ 10,200.00
Net Income before income taxes		$ 3,053,070.00
Federal Income Tax Expense		$ (937,769.00)
Pennsylvania State Income Tax Rate		$ (63,750.00)
Net Income		$ 2,051,551.00