The following income and expense accounts appeared in the accounting records of Dearborn Industries, Inc. (an accrual
Question:
The following income and expense accounts appeared in the accounting records of Dearborn Industries, Inc. (an accrual basis corporation) for calendar year 2019. Account Debit Credit Net sales $ 3,176,000 Dividend income 22,000 Interest income 36,000 Life insurance proceeds 100,000 Cost of goods sold $ 1,743,000 Salaries and wages 905,000 Repairs and maintenance 64,490 Travel (includes $8,000 in meals) 70,000 Entertainment 18,000 Taxes (state, local, payroll) 35,000 Insurances 26,000 Depreciation 29,000 Bad debts 7,000 Charitable contributions (cash) 6,500 Other expenses 25,500 Net loss on stock dispositions 4,500 Federal income taxes 75,350 Totals $ 3,009,340 $ 3,334,000 Book Income $ 324,660 Other Information: 1. The dividend income relates to small stock investments (less than 20% ownership) in various U.S. corporations. 2. The interest income relates to savings accounts ($28,000) and municipal bonds ($8,000). 3. During the year, the corporation's vice-president died unexpectedly. The corporation carried a key-person life insurance policy on her life. The $100,000 life insurance proceeds relates to that policy. 4. For tax purposes, Dearborn uses the uniform capitalization rules in accounting for its inventory. Cost of goods sold is $1,688,000 for tax purposes. 5. For book purposes, the straight-line method of depreciation is used. Tax depreciation (MACRS) amounts to $42,500 for the year ended December 31, 2019. 6. The reserve method is used to compute bad debt expense for book purposes. If the direct charge-off method had been used, bad debt expense would have been $9,200. 7. The insurance expense includes the following items: $8,000 property insurance, $11,000 employee health insurance, and $7,000 key-person life insurance premiums on executives. 8. Other expenses includes the following items: $12,000 office supplies, $8,500 utilities, and $5,000 in lobbying expenses to encourage the support of legislation favorable to the pharmaceutical industry
Federal Taxation 2016 Comprehensive
ISBN: 9780134104379
29th Edition
Authors: Thomas R. Pope, Timothy J. Rupert, Kenneth E. Anderson