L. Smith Co is in the business of selling electronics to consumers. L. Smith was incorporated on March 10, 2018 had the following data available from its adjusted trial balance for its first year of operations, which ended December 31, 2018.

	Debits	Credits
Cash	82,100
Accounts receivable	65,300
Inventory	10,200
Prepaid insurance	2,600
Equipment	48,700
Accumulated depreciation, equipment		4,870
Furniture	61,000
Accumulated depreciation, furniture		4,692
Wages payable		1,500
Accounts payable		29,400
Note payable		51,200
Common Stock		49,300
Additional Paid In Capital		8,500
Dividends	26,700
Sales revenue		1,340,000
Sales returns and allowances	6,200
Interest income from Illinois state bonds		1,500
Dividend income		45,000
Cost of goods sold 850,000
Wage and salaries expense - Officers	78,000
Wage and salaries expense - Other	250,000
Depreciation expense	9,562
Insurance expense	3,500
Business meals	5,400
Business entertainment	1,200
Rent expense	15,900
Fines and fees	1,100
Supplies expense	1,900
Interest expense	1,200
Charitable contributions	15,400

Additional information is available for the preparation of the tax return for tax year 2018:

• Note payable is due in its entirety on June 30, 2020.

• Direct materials purchases for the year was $860,200. No beginning inventory.

• Dividend income is from M. Ditka Inc. L. Smith owns 15% of M. Ditka.

• Tax depreciation for equipment, a 5-year asset, is $9,740 and tax depreciation for furniture, a 7-year asset is $8,717

• No beginning balances in retained earnings or earnings and profits since it's a new corporation.

• The corporation did not compute a provision for income tax expense in its financial statements

Requirements:

1. Prepare a federal tax return including supporting schedules for Luis using the tax forms, relevant amounts, and tax rates for tax year 2018.

2. Use the fill-in tax forms found at the IRS web site (www.irs.gov). You are not allowed to use a tax preparation software.

3. Make sure you include a separate page showing the income tax computation using the tax rate schedules for 2018.

4. Prepare a cover letter summarizing his return.

Answer rating: 100% (QA)

Luis Smith Co balance sheet December 31 2018 Cash82100 Accounts receivable65300 Inventory10200 Prepa... View the full answer