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ACT 415 CSU Rocky Mountain Equipment Corporation Tax Worksheet

ACT 415 CSU Rocky Mountain Equipment Corporation Tax Worksheet

Question Description

I’m working on a accounting case study and need a sample draft to help me understand better.

Option #1:

Part 1: Tax Impacts to Corporation and Shareholder of a IRC Sec. 351 Contribution

Taxpayer A transfers property with an adjusted basis of $10,000 and a fair market value of $50,000 to a controlled corporation in exchange for stock worth $30,000, cash of $10,000, and other property with a fair market value of $10,000. What, if any gain will be recognized?

Part 2: Schedule M1 (CT1) and M2 (CT2) For Rocky Mountain Equipment Corporation Form 1120-F

The Rocky Mountain Equipment Corporation, a Colorado Corporation, was formed by two Colorado State University business school graduates. The Rocky Mountain Equipment Corporation incorporated on October 20, 1974. The main line of business is selling recreational equipment to outdoor enthusiasts. Starting in their parents’ garage, they have grown the corporation to a multimillion dollar business.

To comply with accounting requirements, the company uses an accrual method of accounting. Its accumulated earnings and profits as of December 31, 2016, were $1,200. It made cash distributions during its 2016 calendar tax year of $140,089. This consisted of $85,089 to preferred shareholders and $55,000 to common shareholders. The entire distribution to preferred shareholders is a taxable dividend. The $27,500 distribution on March 15, 2016, to common shareholders is a taxable dividend to extent of $27,318 (99.33%), and the $27,500 distribution on September 15, 2016, to common shareholders is a taxable dividend to the extent of $26,118 (94.97%).

The following profit and loss account appeared in the books of the Rocky Mountain Equipment Corporation for calendar year 2016. It is required to file Form 1120 and completes Form 1120-F (M-1 and M-2).

Your assignment should be a paper 1-2 pages long, not including the required title and reference pages. Adhere to the CSU Global Writing Center (Links to an external site.). Include at least three scholarly sources (you may use the recommended readings) to support your answers. The CSU Global Library is a good place to find these sources. Remember to use in-text citations as appropriate and to include your sources in your reference page.

Account

Debit

Credit

Gross sales

$1,840,000

Sales returns and allowances

$20,000

Cost of goods sold

1,520,000

Interest income from:

Banks

$10,000

Tax-exempt state bonds

5,000

15,000

Proceeds from life insurance (death of corporate officer)

6,000

Bad debt recoveries (no tax deduction claimed)

3,500

Insurance premiums on lives of corporate officers (corporation is beneficiary of policies)

9,500

Compensation of officers

40,000

Salaries and wages

28,000

Repairs

800

Taxes

10,000

Contributions:

Deductible

$23,000

Other

500

23,500

Interest paid (loan to purchase tax-exempt bonds)

850

Depreciation

5,200

Loss on securities

3,600

Net income per books after federal income tax

140,825

Federal income tax accrued for 2016

62,225

Total

$1,864,500

$1,864,500

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The corporation analyzed the retained earnings and the following items appeared in this account on its books.

Item

Debit

Credit

Balance, January 1

$225,000

Net profit (before federal income tax)

203,050

Reserve for contingencies

$10,000

Income tax accrued for the year

62,225

Dividends paid during the year

140,089

Refund of 1995 income tax

18,000

Balance, December 31

233,736

Total

$446,050

$446,050

The following items appear on page 1 of Form 1120.

Gross sales ($1,840,000 less returns and allowances of $20,000)

$1,820,000

Cost of goods sold

1,520,000

Gross profit from sales

$300,000

Interest income

10,000

Total income

$310,000

Deductions:

Compensation of officers

$40,000

Salaries and wages

28,000

Repairs

800

Taxes

10,000

Contributions (maximum allowable)

22,500

Depreciation

6,200

Total deductions

107,500

Taxable income

$202,500

Exercise to be completed:

  1. Please prepare Schedule M-1 for Rocky Mountain Equipment Corporation using the financial information and the Form 1120 line items provided above.
  1. Please prepare Schedule M-2 for Rocky Mountain Equipment Corporation using the retained earning information provided. To accurately calculate and support the ending balance, please complete a Retained Earnings Reconciliation Table.

Clearly identify the requirements being addressed. Show all calculations within the cells of an Excel spreadsheet. This means that you must use formulas and links so that the thought process can be examined. Make effective use of comments to convey your thought process as well. No hard coding of solutions. Submit a single MS Excel file for grading.

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