Estimated Tax Payments (Form 2220): The corporation deposited estimated tax payments as follows:
April 17, 2012 $110,000
June 15, 2012 221,000
September 17, 2012 265,000
December 17, 2012 265,000
Some dates are the 17th because the 15th and 16th fall on a weekend or holiday. Taxable income in 2011 was $1.5 million, and the 2011 tax was $510,000. The corporation C3-65C3-66earned its 2012 taxable income evenly throughout the year. Therefore, it does not use the annualization or seasonal methods
Knoxville Musical sales Inc. Book balance Sheet Information
ACCOUNT January 1, 2012 December 31, 2012
Debit Credit Debit Credit
Cash $ 193116 $ 226823
Accounts Receivable 441180 513000
Allowance for doubtful acc. $ 22059 $ 25650
Inventory 2,375,000 3,325,000
Investment in corporate stock 265,000 110,000
Investment in Municipal bonds 32,000 32,000
Net current deferred tax asset 10,220 8,721
Cash surrender value of ins. policy 42,000 54,000
Land 300,000 300,000
Buildings 1,400,000 1,400,000
Accumulated depr.- Buildings 70,000 98,000
Equipment 960,000 2,640,000
Accumulated depr-Equipment 160,000 249,333
Trucks 250,000 250,000
Accumulated depr.- Trucks 75,000 125,000
Acc. payable 300,000 270,000
Notes payable (short term) 610,000 488,000
Accrued payroll taxes 14,250 17,812
Accrued state income taxes 8,550 14,250
Accrued federal income taxes 116,693
Bonds payable( long term) 2,000,000 2,300,000
Deferred tax liability 158,657 284,588
Capital stock-Common 950,000 950,000
Retain earnings-Unappropriated 1,900,000 3,920,218
TOTALS $6,268,516 $6,268,516 $8,859,544 $8,859,544
The corporation uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should be reflected on Form 1125-A. No other costs or expenses are allocated to cost of goods sold. Note: the corporation is exempt from the uniform capitalization (UNICAP) rules because average gross income for the previous three years was less than $10 million.
Line 9 (a) Check (ii)
(b), (c) & (d) Not applicable
(e) & (f) No
Compensation of Officers (Form 1125-E):
(a) (b) (c) (d) (f)
Mary Travis XXX-XX-XXXX 100% 50% $277,000
John Willis XXX-XX-XXXX 100% 25% 170,000
Chris Parker XXX-XX-XXXX 100% 25% 170,000
For tax purposes, the corporation uses the direct writeoff method of deducting bad debts. For book purposes, the corporation uses an allowance for doubtful accounts. During 2012, the corporation charged $38,000 to the allowance account, such amount representing actual writeoffs for 2012.
Knoxville musical sales, Inc. Book Income Statement 2012
Sales $ 9,500,000
Returns ( 237,500 )
Net sales $ 9,262,500
Beginning Inventory $2,375,000
Ending Inventory 3,325,000
Cost of goods sold (4,275,000)
Gross profit $ 4,987,500
General Insurance 52,250
Net premium- Officers life ins. 42,750
Officer’s compensation 617,500
other salaries 380,000
Legal and accounting fees 47,500
Charitable contributions 28,500
Payroll tax 59,375
Interest expense 199,500
bad debt exp. 41,591
Total expenses (1,834,059)
gain on sale of equipment 104,000
Interest on municipal bonds 4,750
Dividend income 11,400
Net gain on stock sales 18,000
Net income before income taxes $3,291,591
Federal income tax expense ( 1,105,123)
State income tax expense (71,250)
Net Income $ 2,115,218
Additional Information (schedule K)
1 b Accrual
2 a 451140
b Retail sales
c Musical instruments
4 a No
b Yes; omit Schedule G
5 a No
8 Do not check box
9 Fill in the correct amount
11 Do not check box
12 Not applicable
b Not applicable
The corporation incurred $11,000 of organizational expenditures on January 2, 2009. For book purposes, the corporation expensed the entire expenditure. For tax purposes, the corporation elected under Sec. 248 to deduct $5,000 in 2009 and amortize the remaining $6,000 amount over 180 months, with a full monthâ€™s amortization taken for January 2009. The corporation reports this amortization in Part VI of Form 4562 and includes it in â€œOther Deductionsâ€ on Form 1120, Line 26.
Capital Gains and Losses:
The corporation sold 100 shares of PDQ Corp. common stock on October 8, 2012, for $105,000. The corporation acquired the stock on December 15, 2011, for $75,000. The corporation also sold 75 shares of JSB Corp. common stock on June 18, 2012, for $68,000. The corporation acquired this stock on September 18, 2010, for $80,000. The corporation has an $8,000 capital loss carryover from 2011.
Fixed Assets and Depreciation:
For book purposes: The corporation uses straight-line depreciation over the useful lives of assets as follows: Store building, 50 years; Equipment, 15 years (old) and ten years (new); and Trucks, five years. The corporation takes a half-yearâ€™s depreciation in the year of acquisition and the year of disposition and assumes no salvage value. The book financial statements in Tables C:3-4 and C:3-5 reflect these calculations.
For tax purposes: All assets are MACRS property as follows: Store building, 39-year nonresidential real property; equipment, seven-year property; and trucks, five-year property. The corporation acquired the store building for $1.4 million and placed it in service on January 2, 2009. The corporation acquired two pieces of equipment for $320,000 (Equipment 1) and $640,000 (Equipment 2) and placed them in service on January 2, 2009. The corporation acquired the trucks for $250,000 and placed them in service on July 18, 2010. The trucks are not listed property and are not subject to the limitation on luxury automobiles. The corporation did not make the expensing election under Sec. 179 or take bonus depreciation on any property acquired before 2012. Accumulated tax depreciation through December 31, 2011, on these properties is as follows:
Store building $ 106,246
Equipment 1 180,064
Equipment 2 360,128
On October 16, 2012, the corporation sold for $325,000 Equipment 1 that originally cost 320,000 on January 2, 2009. The corporation had no Sec. 1231 losses from prior years. In a separate transaction on October 17, 2012, the corporation acquired and placed in service a piece of equipment costing $2 million. Assume these two transactions do not qualify as a like-kind exchange under Reg. Sec. 1.1031(k)-1(a). The new equipment is seven-year property. The corporation made the Sec. 179 expensing election with regard to the new equipment but elected out of bonus depreciation. Where applicable, use published IRS depreciation tables to compute 2012 depreciation (reproduced in Appendix C of this text).
â€¢ â€¢ The corporationâ€™s activities do not qualify for the U.S. production activities deduction.
â€¢ â€¢ Ignore the AMT and accumulated earnings tax.
â€¢ â€¢ The corporation received dividends (see Income Statement in Table C:3-5) from taxable, domestic corporations, the stock of which Melodic Musical Sales, Inc. owns less than 20%.
â€¢ â€¢ The corporation paid $95,000 in cash dividends to its shareholders during the year and charged the payment directly to retained earnings.
â€¢ â€¢ The state income tax in Table C:3-5 is the exact amount of such taxes incurred during the year.
â€¢ â€¢ The corporation is not entitled any credits.
â€¢ â€¢ Ignore the financial statement impact of any underpayment penalties incurred on the tax return.
Required: Prepare the 2012 corporate tax return for Melodic Musical Sales, Inc. along with any necessary supporting schedules.
Optional: Prepare both Schedule M-3 (but omit Schedule B) and Schedule M-1 even though the IRS does not require both Schedule M-1 and Schedule M-3.
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