Turn in two versions of the file. One assuming the taxpayer is an accrual method taxpayer and one assuming the taxpayer is a cash method taxpayer.

Prepare a book to tax reconciliation.

Include a note next to each asset and liability account describing why or why no M adjustment is needed.

Account Description

Balance

Cash

5,853,000

For purposes of this activity, ignore any state tax considerations.

Accounts Receivable

40,000

The Prepaid Insurance balance is for a contract whose benefit period is March 1 of Year 2 to June 30 of Year 3. Paid on December 31 of Year 1.

Allowance for Doubtful Accounts

(2,000)

The Prepaid Rent balance is for rent whose benefit period is from January 1 to March 31 of Year 2. Paid on December 31 of Year 1.

Prepaid Insurance

70,000

The Prepaid Maintenance balance is for a benefit that is expected to be received by January 31 of Year 2. Payment was made on October 1 of Year 1.

Prepaid Rent

50,000

Tax Depreciation is $300,000.

Prepaid Maintenance

90,000

Accounts Payable was paid out by the end of January.

Fixed Assets

1,400,000

All payroll liabilities (with the exception of Accrued Vacation) were paid by the end of January.

Accumulated Depreciation

(200,000)

Amount paid for Accrued Vacation by March 15 of Year 2 was $5,000.

Security Deposits

80,000

Taxpayer uses the deferral method for Deferred Revenue. During Year 1, book recognized $10,000 of revenue. The remaining revenue is to be recognized $50,000 per year in Years 2 - 5.

Accounts Payable

(60,000)

The 401(k) payable was paid out in June of the next year.

Credit Card Liability

(150,000)

Accrued Payroll

(35,000)

Accrued Employee W/H Taxes

(12,000)

Accrued Employer Payroll Taxes

(15,000)

401(k) Payable

(800,000)

Deferred Compensation

(50,000)

Accrued Vacation

(80,000)

Deferred Revenue

(200,000)

Retained Earnings

-

Revenue

(10,000,000)

Expenses

3,800,000

Depreciation

200,000

Meals

12,000

Entertainment

5,000

Penalties

4,000

-