Echo Corporation (the Company) maintains its books and records and prepares its outside financial statements on...

  

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Echo Corporation (the Company) maintains its books and records and prepares its outside financial statements on the accrual method. The Company qualifies for and files its income tax returns on the cash method. The Company does not do business in any state except Virginia and files as a C Corporation. The tax rate in Virginia is a flat 6%. The Company uses as calendar year end. The Company is not a personal service corporation. The Company's trial balance for 2021 follows. The Company is exempt from the business interest expense limitations of IRC section 163(j). Echo Corporation Trial Balance 12.31.21 Cash Accounts receivable Allowance for doubtful accounts Instalment note receivable Equipment Accumulated depreciation Accounts payable Common stock Retained earnings Sales Interest on instalment note receivable Depreciation Labor Materials Bad debt expense Fines and penalties Interest expense Federal taxes State income tax expense Debit 75,000 185,000 0 795,000 15,000 150,000 450,000 2,500 250 4,500 7,500 1,500 1,686,250 Credit 3,700 795,000 14,000 2,500 85,300 785,000 750 1,686,250 Additional Information 1. As of December 31, 2020, the Company's Accounts Receivable totaled $125,000 and its Accounts Payable at that same date totaled $48,000. 2. In connection with the closing of the Company's 2021 books, the Company decided to increase its allowance for doubtful accounts by $2,500 based on 2% of its year end accounts receivable balance. The beginning of the year allowance for doubtful accounts totaled $1,200 and there were no write offs during calendar year 2021. 3. The Company made estimated tax payments for its expected federal and state taxes for 2021 of $7,500 and $1,500, respectively. These amounts were paid during 2021. 4. There was no balance due with either the Company's federal or state tax returns for 2020. 5. During 2021, the Company purchased a piece of equipment (purchased on 1.1.21) and paid $150,000 cash. The equipment is expected to have a zero-salvage value and a useful life of years. The Company recorded the book depreciation on a straight-line basis and the Company's controller has correctly calculated tax depreciation on this equipment to be $30,000 for the year ended December 31, 2021. 6. The Company paid a fine of $250 for late filing of a federal form 941 related to its payroll deposits for the month of November when the Company's payroll clerk was on an extended leave. 7. The Company's accounts receivable relates exclusively to customer sales and the Company's accounts payable relates exclusively to purchases of materials. 8. During 2021, the Company collected the final payment on an instalment sale from the Company's year ended December 31, 2018. Receipt of this payment was properly recorded, during 2021, as a debit to cash of $26,000, a credit to instalment note receivable of $25,250, and a credit to instalment interest income of $750. At the time of the 2018 instalment sale the gross profit on the sale was properly computed at 30 percent. Required: 1. Reconcile the Company's accrual basis profit per the above trial balance to the Company's cash basis taxable income using the information presented as additional information. Page 7 of 8 2. Compute the Company's Federal and State income tax expense for the year ended December 31, 2021. 3. Compute the balance due with the Company's 2021 federal return and its 2021 state return. 4. Prepare the necessary journal entry to record the Company's current income tax expense based upon the amounts computed in requirements 2 and 3. 5. Compute the dollar amounts that will be included on lines 1a, 1b, 1c, 5, 8, 13, 15, 17, 18, 20 26 (materials and fines), and line 30 of the Company's 2021 federal form 1120. Echo Corporation (the Company) maintains its books and records and prepares its outside financial statements on the accrual method. The Company qualifies for and files its income tax returns on the cash method. The Company does not do business in any state except Virginia and files as a C Corporation. The tax rate in Virginia is a flat 6%. The Company uses as calendar year end. The Company is not a personal service corporation. The Company's trial balance for 2021 follows. The Company is exempt from the business interest expense limitations of IRC section 163(j). Echo Corporation Trial Balance 12.31.21 Cash Accounts receivable Allowance for doubtful accounts Instalment note receivable Equipment Accumulated depreciation Accounts payable Common stock Retained earnings Sales Interest on instalment note receivable Depreciation Labor Materials Bad debt expense Fines and penalties Interest expense Federal taxes State income tax expense Debit 75,000 185,000 0 795,000 15,000 150,000 450,000 2,500 250 4,500 7,500 1,500 1,686,250 Credit 3,700 795,000 14,000 2,500 85,300 785,000 750 1,686,250 Additional Information 1. As of December 31, 2020, the Company's Accounts Receivable totaled $125,000 and its Accounts Payable at that same date totaled $48,000. 2. In connection with the closing of the Company's 2021 books, the Company decided to increase its allowance for doubtful accounts by $2,500 based on 2% of its year end accounts receivable balance. The beginning of the year allowance for doubtful accounts totaled $1,200 and there were no write offs during calendar year 2021. 3. The Company made estimated tax payments for its expected federal and state taxes for 2021 of $7,500 and $1,500, respectively. These amounts were paid during 2021. 4. There was no balance due with either the Company's federal or state tax returns for 2020. 5. During 2021, the Company purchased a piece of equipment (purchased on 1.1.21) and paid $150,000 cash. The equipment is expected to have a zero-salvage value and a useful life of years. The Company recorded the book depreciation on a straight-line basis and the Company's controller has correctly calculated tax depreciation on this equipment to be $30,000 for the year ended December 31, 2021. 6. The Company paid a fine of $250 for late filing of a federal form 941 related to its payroll deposits for the month of November when the Company's payroll clerk was on an extended leave. 7. The Company's accounts receivable relates exclusively to customer sales and the Company's accounts payable relates exclusively to purchases of materials. 8. During 2021, the Company collected the final payment on an instalment sale from the Company's year ended December 31, 2018. Receipt of this payment was properly recorded, during 2021, as a debit to cash of $26,000, a credit to instalment note receivable of $25,250, and a credit to instalment interest income of $750. At the time of the 2018 instalment sale the gross profit on the sale was properly computed at 30 percent. Required: 1. Reconcile the Company's accrual basis profit per the above trial balance to the Company's cash basis taxable income using the information presented as additional information. Page 7 of 8 2. Compute the Company's Federal and State income tax expense for the year ended December 31, 2021. 3. Compute the balance due with the Company's 2021 federal return and its 2021 state return. 4. Prepare the necessary journal entry to record the Company's current income tax expense based upon the amounts computed in requirements 2 and 3. 5. Compute the dollar amounts that will be included on lines 1a, 1b, 1c, 5, 8, 13, 15, 17, 18, 20 26 (materials and fines), and line 30 of the Company's 2021 federal form 1120.

Answer rating: 100% (QA)

1 The Companys accrual basis profit for 2021 is 785000 The Companys cash basis taxable income for 20... View the full answer