There are more than 25 income tax elements (e.g., gross income, deductions, credits) included in the below scenario. Identify the source and nature of the tax elements by paragraph as shown in the example.
EX: Paragraph A - The flood will cause a casualty loss that will be deductible by MOSES and lower MOSES' taxable income.
The date is October 9, 2020. "We have a full agenda. Let's get started!" Kris Kub, the president of Michiana Oil Supply and Exploration Services ( MOSES), Inc., has just called the fourth quarter planning and third quarter review session to order. Paragraph A "Bonnie, please give us a quick summary of the situation in Fort Wayne." Bonnie Bengal, a MOSES vice-president reports, "The flood completely destroyed the old warehouse on Allen Place. The rent we're paying on the temporary warehouse located in Warsaw, Indiana has been paid in full (i.e., $60,000 at a rate of $10,000/month) for the period from October 15, 2020 to April 15, 2021. Right now, we're looking into more permanent possibilities. We could use the meager Insurance proceeds-they only covered 70% of the building's book value-- as a down payment on a new facility. Another possibility is to explore is acquiring an older structure in the historic "Old Town" area and convert it to warehouse and office space. There are several vacant facilities that would have to be checked for structural soundness. Speaking of insurance, Aggresive Insurance has offered us a 10% discount if we're willing to pay the full 12-month premium( i.e., December 1, 2020 to November 30, 2021) on or before November 30, 2020. As you know, our retail location was also damaged. We've decided to take care of some needed work while it is being repaired. Once that work is completed we can replenish our inventory. Remember, MOSES sold off a lot of inventory to generate needed cash following the flood. Based on the supply chain information received yesterday, it's my bet that returning the inventory to pre-flood levels won't occur until late January or February of next year. I've requested money to spend on several projects including a ramped front and back entrance, solar panels and a new roof since a lot of damage was from the leaking caused by the heavy rain." Looking at the MOSES controller, Ron Rafael, Bengal demands When will I have an answer on my request?" Paragraph B Rafael indicates that a response will occur after he completes on-going projects emphasizing, "Right now, we're in the final stages of acquiring some property in Arizona. But first, we have to sell the operating land we own in northern Ohio." Rafael continues, "The cash flow problern we were dealing with at the end of the second quarter has been resolved. You'll recall there were several factors contributing to our liquidity dilemma. First, the flood created some heavy demands for cash to pay for the clean-up work and to replace damaged equipment. Next, our tax liability was greater than expected due to items we uncovered in our LIFO project work. Another reason we were strapped for cash was the lack of a dividend from Lake Shore Drive Development, a company that we control since we own 72% of their common stock. They are planning to pay a dividend of $1.30 per share at the end of the year." Kub Interjects, Don't forget the 10-month, 8.8% certificate of deposit that matures at the end of November. Also, thank goodness we increased our stock holdings in Johnson & Johnson. The stock's price has gone up by 10% In the past six months and it looks like they will increase the 3rd quarter dividend payable later this month. Not saying that we have much influence at & since our stockholdings represent less than 2% of their outstanding shares." Paragraph C Following a short break, Kub turns the meeting over to Ross Renoir, the company's outside legal counsel, to provide an update on MOSES law activities since the last meeting. "I've got some good news and some bad news. The good information revolves around a debt cancellation that occurred in September. $120,000 MOSES owed to one of our suppliers-Pitt Petroleum-was lowered to $50,000 based on the poor quality and late delivery of the product. And Driver Delivery, Inc. has agreed to pay MOSES the $80,000 punitive damages that were levied by the court in last year's trial. On the down side, MOSES must pay $40,000 compensatory damage on the oil spill case we lost based on the Hawks Corporation petition. AND MOSES disagreement with the IRS concerning income taxes revolving credit sales found MOSES turning over an additional $33,000 to the IRS. Another piece of dismaying news is the delay in the research effort-THE PENNANT PROJECT-scheduled to be completed in December. Ekard Enterprises is trying to finish by December 31, 2020 so we can include their bill in 2020 expenditures. However, their chief engineer, Adele Drake-the founder's daughter has major health problems since she spent part of the summer in Sweden and contracted COVID-19 during her stay. It's unlikely that the PENNANT PROJECT will be completed in 2020." As Renoir looks straight at Rafael, the MOSES controller, Renoir says, "One more item. My firm's August invoice for professional services had not been paid as of Sept. 15,2020." Paragraph D Kub describes a new fringe benefit package which will be offered to the union at next month's contract talks. "We're planning to offer them a dental Insurance plan where MOSES will pay half of the premiums on the policy. Life insurance coverage we provide at no charge to the employees will increase to three times their base wage or salary. One more item, the land we own on the south side of Chicago has developed a toxic waste problem. We were holding the property as an investment. Right now, selling or abandoning that property would seem prudent especially with the "heat" we're getting in the press. Oh yes, I am very pleased to report that our hiring of workers with disabilities who have completed at least six months of training with Goodwill Industries is working out very well. The people we've hired are very motivated, work hard, and have, in my opinion, added something special to our operations." Paragraph E Rafael, the controller, follows up on this,'The Executive Committee has decided that MOSES, Inc. will donate three percent of 2020 net income after taxes to Special Olympics. This represents a substantial change in our policy toward contributions." Kub states, "Our move into foreign markets has made steady progress. New operations in Brazil, Panama and Peru will generate solid profits in 2020. With a new Director of International Marketing in place, we expect sales and profits from that portion of MOSES to continue to grow. "Kub continues, "Our royalty collections have been lower and slower than anticipated. At the end of July, MOSES outsourced that part of our business to Rizzo Royalties, a professional services firm that hired our current royalty collection personnel and now manages that aspect of our operation from their South Bend office. We lost quite a lot of money when we sold the office equipment and computers used in the royalty collections area. Bengal interjects, "Going back to the south side of Chicago property. Don't you think it's time to sell that land?" Rafael responds, "Bonnle, you're right. Even though MOSES will take a loss on the sale it's time to move the property and stop the adverse publicity not to mention the penalties we've been paying." Baez ends the meeting with the following," An enhanced amount of capital expenditure spending will occur in the 4 quarter. Some additional funding may be given the 'green light but that will be determined after we discuss the year-end bonuses to officers and others. The date is October 9, 2020. "We have a full agenda. Let's get started!" Kris Kub, the president of Michiana Oil Supply and Exploration Services ( MOSES), Inc., has just called the fourth quarter planning and third quarter review session to order. Paragraph A "Bonnie, please give us a quick summary of the situation in Fort Wayne." Bonnie Bengal, a MOSES vice-president reports, "The flood completely destroyed the old warehouse on Allen Place. The rent we're paying on the temporary warehouse located in Warsaw, Indiana has been paid in full (i.e., $60,000 at a rate of $10,000/month) for the period from October 15, 2020 to April 15, 2021. Right now, we're looking into more permanent possibilities. We could use the meager Insurance proceeds-they only covered 70% of the building's book value-- as a down payment on a new facility. Another possibility is to explore is acquiring an older structure in the historic "Old Town" area and convert it to warehouse and office space. There are several vacant facilities that would have to be checked for structural soundness. Speaking of insurance, Aggresive Insurance has offered us a 10% discount if we're willing to pay the full 12-month premium( i.e., December 1, 2020 to November 30, 2021) on or before November 30, 2020. As you know, our retail location was also damaged. We've decided to take care of some needed work while it is being repaired. Once that work is completed we can replenish our inventory. Remember, MOSES sold off a lot of inventory to generate needed cash following the flood. Based on the supply chain information received yesterday, it's my bet that returning the inventory to pre-flood levels won't occur until late January or February of next year. I've requested money to spend on several projects including a ramped front and back entrance, solar panels and a new roof since a lot of damage was from the leaking caused by the heavy rain." Looking at the MOSES controller, Ron Rafael, Bengal demands When will I have an answer on my request?" Paragraph B Rafael indicates that a response will occur after he completes on-going projects emphasizing, "Right now, we're in the final stages of acquiring some property in Arizona. But first, we have to sell the operating land we own in northern Ohio." Rafael continues, "The cash flow problern we were dealing with at the end of the second quarter has been resolved. You'll recall there were several factors contributing to our liquidity dilemma. First, the flood created some heavy demands for cash to pay for the clean-up work and to replace damaged equipment. Next, our tax liability was greater than expected due to items we uncovered in our LIFO project work. Another reason we were strapped for cash was the lack of a dividend from Lake Shore Drive Development, a company that we control since we own 72% of their common stock. They are planning to pay a dividend of $1.30 per share at the end of the year." Kub Interjects, Don't forget the 10-month, 8.8% certificate of deposit that matures at the end of November. Also, thank goodness we increased our stock holdings in Johnson & Johnson. The stock's price has gone up by 10% In the past six months and it looks like they will increase the 3rd quarter dividend payable later this month. Not saying that we have much influence at & since our stockholdings represent less than 2% of their outstanding shares." Paragraph C Following a short break, Kub turns the meeting over to Ross Renoir, the company's outside legal counsel, to provide an update on MOSES law activities since the last meeting. "I've got some good news and some bad news. The good information revolves around a debt cancellation that occurred in September. $120,000 MOSES owed to one of our suppliers-Pitt Petroleum-was lowered to $50,000 based on the poor quality and late delivery of the product. And Driver Delivery, Inc. has agreed to pay MOSES the $80,000 punitive damages that were levied by the court in last year's trial. On the down side, MOSES must pay $40,000 compensatory damage on the oil spill case we lost based on the Hawks Corporation petition. AND MOSES disagreement with the IRS concerning income taxes revolving credit sales found MOSES turning over an additional $33,000 to the IRS. Another piece of dismaying news is the delay in the research effort-THE PENNANT PROJECT-scheduled to be completed in December. Ekard Enterprises is trying to finish by December 31, 2020 so we can include their bill in 2020 expenditures. However, their chief engineer, Adele Drake-the founder's daughter has major health problems since she spent part of the summer in Sweden and contracted COVID-19 during her stay. It's unlikely that the PENNANT PROJECT will be completed in 2020." As Renoir looks straight at Rafael, the MOSES controller, Renoir says, "One more item. My firm's August invoice for professional services had not been paid as of Sept. 15,2020." Paragraph D Kub describes a new fringe benefit package which will be offered to the union at next month's contract talks. "We're planning to offer them a dental Insurance plan where MOSES will pay half of the premiums on the policy. Life insurance coverage we provide at no charge to the employees will increase to three times their base wage or salary. One more item, the land we own on the south side of Chicago has developed a toxic waste problem. We were holding the property as an investment. Right now, selling or abandoning that property would seem prudent especially with the "heat" we're getting in the press. Oh yes, I am very pleased to report that our hiring of workers with disabilities who have completed at least six months of training with Goodwill Industries is working out very well. The people we've hired are very motivated, work hard, and have, in my opinion, added something special to our operations." Paragraph E Rafael, the controller, follows up on this,'The Executive Committee has decided that MOSES, Inc. will donate three percent of 2020 net income after taxes to Special Olympics. This represents a substantial change in our policy toward contributions." Kub states, "Our move into foreign markets has made steady progress. New operations in Brazil, Panama and Peru will generate solid profits in 2020. With a new Director of International Marketing in place, we expect sales and profits from that portion of MOSES to continue to grow. "Kub continues, "Our royalty collections have been lower and slower than anticipated. At the end of July, MOSES outsourced that part of our business to Rizzo Royalties, a professional services firm that hired our current royalty collection personnel and now manages that aspect of our operation from their South Bend office. We lost quite a lot of money when we sold the office equipment and computers used in the royalty collections area. Bengal interjects, "Going back to the south side of Chicago property. Don't you think it's time to sell that land?" Rafael responds, "Bonnle, you're right. Even though MOSES will take a loss on the sale it's time to move the property and stop the adverse publicity not to mention the penalties we've been paying." Baez ends the meeting with the following," An enhanced amount of capital expenditure spending will occur in the 4 quarter. Some additional funding may be given the 'green light but that will be determined after we discuss the year-end bonuses to officers and others
