corporate income tax

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instructions complete excel worksheets to determine the taxable income of a regular corporation and to partially complete form 1120, u.s. corporation income tax return. background information 1. cicada, inc., was formed on may 15, 2007, by jack and jill hill to manufacture plastic bugs to use in elementary school entomology classes. the plastic bugs come in realistic shapes, sizes, and colors; and they are sold in 25 count bags. 2. the corporation’s employer identification number is 13-1234567; the principal business activity code is 326100; and the business address is 13425 conway road, maryville, missouri 64131. 3. cicada uses the accrual method of accounting and reports on a calendar year basis. 4. inventories are determined under the lower of cost or market method with full absorption of cost. cicada’s inventory records reflect the following: 5. jack and jill, brother and sister, each own half of the outstanding common stock, and no other class of stock is authorized. every three years, they rotate positions of president and vice-president. currently, jill is the president and jack is the vicepresident. both are full-time employees, and the corporation has no other officers. each receives an annual salary of $40,000. 6. during 2011, cicada distributed a cash dividend of $5,000. 7. cicada uses the allowance method for bad debts, and $600 of accounts receivable were written off during the year. 8. because cicada does not need to prepare financial statements using gaap, it uses tax depreciation methods for book purposes. 9. a child choked on one of cicada’s plastic bugs, and the child’s parents have threatened legal action for personal damages. cicada recorded a contingent liability of $10,000 during 2011 and an offsetting debit to lawsuit expense. beginning inventory, january 1 $ 18,000 ending inventory, december 31 24,000 purchases 135,000 direct labor 67,500 other manufacturing costs 21,000 2 10. during the current year, cicada made timely, estimated tax payments to the irs totaling $5,000. 11. fringe benefits expense of $3,600 is for the cost of premiums on the life insurance policies of jack and jill. cicada owns the policies and is the designated beneficiary. 12. a worksheet showing 2011 book income and expense account balances of cicada, inc., is provided in the accompanying excel workbook. required • complete the excel worksheet provided to determine taxable income and to facilitate the preparation of form 1120. to determine any limitations on the charitable contribution deduction and the dividends received deduction (drd), it will be beneficial to prepare two worksheets. the first (provided) will be used to determine modified taxable income for the charitable contribution limitation. after completing the calculation, copy this worksheet, insert any m-1 for charity, and then use this second worksheet to determine any limitation for the drd. • make sure you document your calculations for charitable contributions, drd, and total tax on the appropriate excel worksheet. • prepare the 2011 corporate tax return for cicada, inc., by typing the necessary information on the tax forms provided on the irs website. complete the following forms:  form 1120, page 1  form 1120, page 2 – schedule c  form 1120, page 3 – schedule j, parts i and ii  form 1120, page 5 – schedule m-1 (note that you will also need to provide a supporting schedule for line 5 to file with the tax return because there is not enough space on schedule m-1 to show each book/tax difference.)  form 1125-a – cost of goods sold • prepare the journal entry for income tax expense. provide supporting calculations for the debit to the deferred tax asset account and the credit to the deferred tax liability account, if applicable. assume cicada will continue to have the same marginal tax rate in future years as it has for 2011. use a separate worksheet in your excel workbook to document your work.
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