Question
Week 3 Determine Adjusted Book Income: 1. You are provided with the unadjusted trial balance (Microsoft Excel) and your managers meeting notes and questions (Microsoft
Week 3 Determine Adjusted Book Income:
1. You are provided with the unadjusted trial balance (Microsoft Excel) and your managers meeting notes and questions (Microsoft Word) for your new tax client Phoenix Medical.
2. Following the notes, modify the unadjusted trial balance to generate a trial balance workpaper (in Microsoft Excel) that includes:
a. Adjusting Journal Entries
3. The client depends on you, the CPA, to provide journal entries for activity in fixed assets. While discussing fixed assets, the client divulges that he got a great deal to upgrade his laser dermatology equipment. Ultimately, you find out that $569,888 of new equipment was purchased and placed in service on 6/18/2014.
4. Furthermore, and much after the fact, you discover that old medical equipment was sold to an unrelated party for $75,000 cash. The original cost of the equipment was $300,000 and it was fully depreciated (no Sec. 179). The cash was deposited in one of the shareholders personal accounts.
a. Provide a journal entry to calculate the gain on sale and adjust the fixed asset and accumulated depreciation accounts.
5. The client depends on his accountant to provide a journal entry for the annual depreciation expense. They have adopted a policy of treating book depreciation equal to tax depreciation. Depreciation expense for the year will include: a. Depreciation on assets placed in service prior to 2014 is: $86,769
b. Maximize Sec. 179 expense on assets placed in service in 2014.
c. Take Sec. 168(k) 50% Bonus on new equipment if applicable.
Week 3 Determine Taxable Income:
1. Determine taxable income. Show all adjustments in the Microsoft Excel spreadsheet. Footnote references are provided to assist you.
2. The Dr. has filed his prior tax returns on the cash basis.
a. What questions will you ask to be sure he can continue to file on the cash basis?
3. You find that in 2014, the Dr. qualifies, and choose to file on the cash basis. His books are kept on the accrual basis. Determine the adjustments needed.
4. No federal taxes were paid in 2013, and no estimated taxes were paid in 2014.
5. Within the state tax expense, you find $4,389 is late payment penalties.
6. While analyzing the financial information, you find that hidden in Accounts Payable is $28,953 of accrued salaries. You also find that the salaries were paid in the first week of February. a. Does this have an impact on taxable income?
7. Determine the accrual to cash adjustments for accounts receivable and accounts payable.
8. A charitable contribution carryforward of $40,000 is available. 9. Included in insurance expense is $12,523 of officers life insurance. You determine the company is the beneficiary, and each officer is a greater than 20% shareholder
ONLY THE PORTION BELOW NEEDS TO BE COMPLETED TO SELL OBSOLETE EQUIPMENT & DEPRECIATION/SEC179.
| Date | Num | Memo | Account | Debit | Credit | ||||||
| ######## | 2014 Adj 1 | to sell obsolete equipment | 17000 Accumulated Depreciation | ||||||||
| to sell obsolete equipment | 16100 Medical Equipment | ||||||||||
| to sell obsolete equipment | 18100 Loan to Shareholder | ||||||||||
| to sell obsolete equipment | 75000 Gain on Sale of Assets | ||||||||||
| 0.00 | 0.00 | ||||||||||
| ######## | 2014 Adj 2 | to record 2014 depreciation on assets placed in service prior to 2014 | 62400 Depreciation Expense | ||||||||
| to record 2014 depreciation on assets placed in service prior to 2014 | 17000 Accumulated Depreciation | ||||||||||
| to record Sec. 179 expense | 62400 Depreciation Expense | ||||||||||
| to record Sec. 179 expense | 17000 Accumulated Depreciation | ||||||||||
| to record depreciation on assets placed in service in 2014 | 62400 Depreciation Expense | ||||||||||
| to record depreciation on assets placed in service in 2014 | 17000 Accumulated Depreciation | ||||||||||
| 0.00 | 0.00 | ||||||||||
| TOTAL | 0.00 | 0.00 | |||||||||
| Dec 31, 14 | Dec 31, 13 | $ Change | |||||||
| ASSETS | |||||||||
| Current Assets | |||||||||
| Checking/Savings | |||||||||
| 10001 Checking | 609,842.00 | 277,131.00 | 332,711.00 | ||||||
| 10010 Savings | 557,392.23 | 325,541.23 | 231,851.00 | ||||||
| 10020 Cash Maximizer | 558,380.05 | 69,672.05 | 488,708.00 | ||||||
| Total Checking/Savings | 1,725,614.28 | 672,344.28 | 1,053,270.00 | ||||||
| Accounts Receivable | |||||||||
| 11000 Accounts Receivable | 260,990.00 | 826,113.00 | -565,123.00 | ||||||
| Total Accounts Receivable | 260,990.00 | 826,113.00 | -565,123.00 | ||||||
| Other Current Assets | |||||||||
| 18100 Loan to Shareholder | 75,000.00 | 0.00 | 75,000.00 | ||||||
| Total Other Current Assets | 75,000.00 | 0.00 | 75,000.00 | ||||||
| Total Current Assets | 2,061,604.28 | 1,498,457.28 | 563,147.00 | ||||||
| Fixed Assets | |||||||||
| 15000 Furniture and Equipment | 40,316.00 | 40,316.00 | 0.00 | ||||||
| 15500 Leasehold Improvements | 506,889.00 | 506,889.00 | 0.00 | ||||||
| 16100 Medical Equipment | 1,399,776.00 | 1,129,888.00 | 269,888.00 | ||||||
| 17000 Accumulated Depreciation | -1,568,773.00 | -1,240,071.00 | -328,702.00 | ||||||
| Total Fixed Assets | 378,208.00 | 437,022.00 | -58,814.00 | ||||||
| Other Assets | |||||||||
| 18001 Investment in Big Labs | 3,206,518.00 | 2,306,518.00 | 900,000.00 | ||||||
| 18050 Investment in R&D Company | 866,507.20 | 364,352.20 | 502,155.00 | ||||||
| Total Other Assets | 4,073,025.20 | 2,670,870.20 | 1,402,155.00 | ||||||
| TOTAL ASSETS | 6,512,837.48 | 4,606,349.48 | 1,906,488.00 | ||||||
| LIABILITIES & EQUITY | |||||||||
| Liabilities | |||||||||
| Current Liabilities | |||||||||
| Accounts Payable | |||||||||
| 20001 Accounts Payable | 93,648.00 | 107,245.00 | -13,597.00 | ||||||
| Total Accounts Payable | 93,648.00 | 107,245.00 | -13,597.00 | ||||||
| Credit Cards | |||||||||
| 20100 Credit Cards | 39,065.51 | 34,742.51 | 4,323.00 | ||||||
| Total Credit Cards | 39,065.51 | 34,742.51 | 4,323.00 | ||||||
| Other Current Liabilities | |||||||||
| 20200 Accrued Salaries | 28,953.00 | 26,375.00 | 2,578.00 | ||||||
| Total Other Current Liabilities | 28,953.00 | 26,375.00 | 2,578.00 | ||||||
| Total Current Liabilities | 161,666.51 | 168,362.51 | -6,696.00 | ||||||
| Long Term Liabilities | |||||||||
| 28001 Business Loan | 1,207,401.72 | 1,333,423.72 | -126,022.00 | ||||||
| Total Long Term Liabilities | 1,207,401.72 | 1,333,423.72 | -126,022.00 | ||||||
| Total Liabilities | 1,369,068.23 | 1,501,786.23 | -132,718.00 | ||||||
| Equity | |||||||||
| 30100 Capital Stock | 1,000.00 | 1,000.00 | 0.00 | ||||||
| 31400 Shareholder Distributions | -400,000.00 | 0.00 | -400,000.00 | ||||||
| 32000 Retained Earnings | 3,103,563.25 | 3,103,563.25 | 0.00 | ||||||
| Net Income | 2,439,206.00 | 0.00 | 2,439,206.00 | ||||||
| Total Equity | 5,143,769.25 | 3,104,563.25 | 2,039,206.00 | ||||||
| TOTAL LIABILITIES & EQUITY | 6,512,837.48 | 4,606,349.48 | 1,906,488.00 | ||||||
| Unadjusted Balance | Book Adjustments | Adjusted Book Balance | Tax Adjustments | Adjusted Tax Balance | ||||||||||||||||
| Debit | Credit | Debit | Credit | Debit | Credit | Debit | Credit | Debit | Credit | |||||||||||
| 10001 Checking | 609,842.00 | 609,842.00 | 609,842.00 | |||||||||||||||||
| 10010 Savings | 557,392.23 | 557,392.23 | 557,392.23 | |||||||||||||||||
| 10020 Cash Maximizer | 558,380.05 | 558,380.05 | 558,380.05 | |||||||||||||||||
| 11000 Accounts Receivable | 260,990.00 | 260,990.00 | 260,990.00 | |||||||||||||||||
| 18100 Loan to Shareholder | Adj 1 | 0.00 | 0.00 | |||||||||||||||||
| 15000 Furniture and Equipment | 40,316.00 | 40,316.00 | 40,316.00 | |||||||||||||||||
| 15500 Leasehold Improvements | 506,889.00 | 506,889.00 | 506,889.00 | |||||||||||||||||
| 16100 Medical Equipment | 1,699,776.00 | Adj 1 | 1,699,776.00 | 1,699,776.00 | ||||||||||||||||
| 17000 Accumulated Depreciation | 1,240,071.00 | Adj 1 & 2 | 1,240,071.00 | 1,240,071.00 | ||||||||||||||||
| 18001 Investment in Big Labs | 3,206,518.00 | 3,206,518.00 | 3,206,518.00 | |||||||||||||||||
| 18050 Investment in R&D Company | 866,507.20 | 866,507.20 | 866,507.20 | |||||||||||||||||
| 20001 Accounts Payable | 122,601.00 | r | 122,601.00 | 122,601.00 | ||||||||||||||||
| 20100 Credit Cards | 39,065.51 | 39,065.51 | 39,065.51 | |||||||||||||||||
| 20200 Accrued Salaries | 0.00 | r | 0.00 | 0.00 | ||||||||||||||||
| 28001 Business Loan | 1,207,401.72 | 1,207,401.72 | 1,207,401.72 | |||||||||||||||||
| 30100 Capital Stock | 1,000.00 | 1,000.00 | 1,000.00 | |||||||||||||||||
| 31400 Shareholder Distributions | 400,000.00 | 400,000.00 | 400,000.00 | |||||||||||||||||
| 32000 Retained Earnings | 3,103,563.25 | 3,103,563.25 | 3,103,563.25 | |||||||||||||||||
| 43700 Fee for Service Income | 5,050,583.00 | 5,050,583.00 | a | 5,050,583.00 | ||||||||||||||||
| 47300 Refunds | 17,633.00 | 17,633.00 | 17,633.00 | |||||||||||||||||
| 60000 Advertising and Promotion | 1,252.00 | 1,252.00 | 1,252.00 | |||||||||||||||||
| 60200 Automobile Expense | 11,961.00 | 11,961.00 | 11,961.00 | |||||||||||||||||
| 60400 Bank Service Charges | 8,808.00 | 8,808.00 | 8,808.00 | |||||||||||||||||
| 61000 Business Licenses and Permits | 5,611.00 | 5,611.00 | 5,611.00 | |||||||||||||||||
| 61100 Charitable Contributions (Cash) | 60,000.00 | 60,000.00 | b | 60,000.00 | ||||||||||||||||
| 61700 Computer and Internet Expenses | 13,575.00 | 13,575.00 | 13,575.00 | |||||||||||||||||
| 62400 Depreciation Expense | Adj 2 | 0.00 | 0.00 | |||||||||||||||||
| 62500 Dues and Subscriptions | 8,327.00 | 8,327.00 | 8,327.00 | |||||||||||||||||
| 62600 Equipment Rental | 201,106.00 | 201,106.00 | 201,106.00 | |||||||||||||||||
| 62600 Equipment Rental:62610 Laser Facility Rent | 14,979.00 | 14,979.00 | 14,979.00 | |||||||||||||||||
| 63300 Insurance Expense | 55,356.00 | 55,356.00 | 55,356.00 | |||||||||||||||||
| 63400 Interest Expense | 63,678.00 | 63,678.00 | 63,678.00 | |||||||||||||||||
| 63600 Laboratory Testing Fees | 121,653.00 | 121,653.00 | 121,653.00 | |||||||||||||||||
| 64300 Meals and Entertainment | 16,725.00 | 16,725.00 | c | 16,725.00 | ||||||||||||||||
| 64400 Medical Records and Supplies | 103,456.00 | 103,456.00 | 103,456.00 | |||||||||||||||||
| 66700 Professional Fees | 123,945.00 | 123,945.00 | 123,945.00 | |||||||||||||||||
| 67200 Repairs and Maintenance | 18,855.00 | 18,855.00 | 18,855.00 | |||||||||||||||||
| 67800 Salaries and Wages | 321,580.00 | 321,580.00 | 321,580.00 | |||||||||||||||||
| 67800 Salaries and Wages:67810 Officer Compensation | 940,000.00 | 940,000.00 | 940,000.00 | |||||||||||||||||
| 68000 Taxes:68010 Payroll Taxes | 206,103.00 | 206,103.00 | 206,103.00 | |||||||||||||||||
| 68000 Taxes:68020 State Tax | 35,041.00 | 35,041.00 | d | 35,041.00 | ||||||||||||||||
| 68500 Uniforms | 16,121.00 | 16,121.00 | 16,121.00 | |||||||||||||||||
| 68600 Utilities | 30,364.00 | 30,364.00 | 30,364.00 | |||||||||||||||||
| 70200 Interest Income | 833.00 | 833.00 | 833.00 | |||||||||||||||||
| 70222 Tax Exempt Interest | 17,621.00 | 17,621.00 | e | 17,621.00 | ||||||||||||||||
| 70300 Sublease Rents | 240,000.00 | 240,000.00 | 240,000.00 | |||||||||||||||||
| 71000 Dividends | 80,000.00 | 80,000.00 | 80,000.00 | |||||||||||||||||
| 75000 Gain on Sale of Assets | Adj 1 | 0.00 | 0.00 | |||||||||||||||||
| M-1 Accrual to Cash - Accounts Payable | 0.00 | 0.00 | f | 0.00 | ||||||||||||||||
| TOTAL | ########## | ########## | 0.00 | 0.00 | ########## | 11,102,739.48 | 0.00 | 0.00 | ########## | ########### | ||||||||||
| Book Income | 2,992,908 | Tax Income | 2,992,908 | |||||||||||||||||
| Book Adjustments | Book Income Check Figure | 553,702 | ||||||||||||||||||
| Adj 1 | Sale of fixed assets | |||||||||||||||||||
| Adj 2 | 2014 Depreciation | |||||||||||||||||||
| r | Reclass of accounts payable | |||||||||||||||||||
| Tax Adjustments | ||||||||||||||||||||
| a | Accrual to Cash Adjustment - Accounts Receivable | |||||||||||||||||||
| b | Charitable contributions carryover | |||||||||||||||||||
| c | 50% Meals and Entertainment | |||||||||||||||||||
| d | Non-deductible penalties | |||||||||||||||||||
| e | Tax Exempt interest | |||||||||||||||||||
| f | Accrual to Cash Adjustment - Accounts Payable | |||||||||||||||||||
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Enterprise Compliance Risk Management An Essential Toolkit For Banks And Financial Services
Authors: Saloni Ramakrishna
1st Edition
1118550285, 978-1118550281
