1. For 2017, Permtemp reported the following book income statement and balance sheet, excluding the federal income tax expenses, deferred tax assets, and deferred tax liabilities:

   Sales $33,000,000

   Cost of Goods Sold (22,000,000)
   ____________
   Gross Profit $11,000,000

   Dividend Income 55,000

   Tax-exempt Interest Income 15,000
   ____________
   Total Income $ 11,070,000

   Expenses $ 800,000

   Bad Debts 625,000

   Charitable Contr. 40,000

   Interest 455,000

   Meals & Entertainment 60,000

   Other 4,675,000
   _______________

   Total Expenses (6,655,000)
   ___________
   Net loss before federal income taxes $4,415,000
   ============
   Cash $2,125,000

   Accounts receivable $3,300,000

   Allowance for doubtful (450,000) 2,850,000
   _________
   Inventory 6,000,000

   Fixed Assets $10,000,000

   Acc. depr. (1,600,000) 8,400,000

   Investment in Corporate Stock 1,000,000

   Investment in tax-exempt bonds 50,000
   ___________
   Total Assets $20,425,000
   ===========
   Accounts Payable $ 2,120,000

   Long-term debt 8,500,000

   Common Stock 6,000,000

   Retained Earnings 3,805,000
   __________
   Total Liabilities and equity $20,425,000
   ===========

   Additional information for 2017:

2. Because of limitations, $30,000 of the meals and entertainment expenses will be disallowed for tax purposes.
3. Depreciation for tax purposes is $2.45 million under MACRS
4. Bad debt expense for tax purposes is $425,000 under the direct writeoff method.
5. Ignore the U.S. production activities deduction.
6. The corporate tax rate in 2017 was 34%.
7. At the end of 2017, Congress reduced the corporate tax rate to 21% effective for 2018.

8. Required for 2017:

9.  Prepare page 1 of the 2017 Form 1120, computing the corporation’s taxable income and tax liability.
10.  Determine the corporation’s deferred tax asset and deferred tax liability situation, and then complete the income statement and balance sheet to reflect proper GAAP accounting ASC 740. Because of the enacted tax rate change, deferred assets and liabilities in the end of 2017 will need to be value at 21%. Use the balance sheet information to prepare Schedule L of the 2017 Form 1120.
11. Prepare the 2017 Schedule M-3 for Form 1120.
12. Prepare a schedule that reconciles the corporation’s effective tax rate to the statutory 34% tax rate. This schedule will need a line to reflect the change in the future tax rate.

Answer rating: 100% (QA)

Income Statement Sales 33000000 Cost of Goods Sold 22000000 Gross Profit 11000000 Dividend Income 55... View the full answer