Will Glaser, Jon Kraft, and Tim Westergren own and operate The Music Shop, Inc. The C Corporation

Fantastic news! We've Found the answer you've been seeking!

Question:

Will Glaser, Jon Kraft, and Tim Westergren own and operate The Music Shop, Inc. The C Corporation was formed on January 1, 2000. Will, Jon, and Tim are full-time employees, and received a salary of $26,000 each. Other pertinent information is given below.

The corporation is an accrual method, calendar year taxpayer.
The corporate headquarters are located at 2101 Webster Street, Oakland, CA 94612.
The employer identification number is 88-1234567.

Prepare The Music Shop’s 2020 Form 1120: Make the adjusting journal entries to determine the final book balance sheet and book income. Use the final book amounts to complete the balance sheet and M-2 Schedule of the tax return. Make tax adjustments to the final book income to calculate the corporation’s taxable income. Use the taxable income to complete the Income statement and M-1 schedule of the tax return.

This project can be completed individually, or in groups of two. Below is a tentative income statement, tentative balance sheet, and additional information for the corporation.

Tentative Balance Sheet		January 1, 2020	December 31, 2020

Assets
Cash		$290,000	367,500
Accounts Receivable		60,000	100,000
Allowance for doubtful accounts		-10,000	-5,000
Inventory		410,000	290,000
City of Oakland Bonds (tax-exempt)		28,000	28,000
Stocks (current assets)		88,000	88,000
Equipment		100,000	100,000
Building		842,000	842,000
Accumulated Depreciation		-656,000	-700,000
Land		765,000	765,000
Total Assets		$1,917,000	$1,875,500

Liabilities and Equity
Accounts Payable		124,000	87,000
Note Payable due 2025		240,000	240,000
Common Stock		89,000	89,000
Retained Earnings		1,464,000	1,459,500
Total Liabilities and Equity		$1,917,000	$1,875,500
Tentative Income Statement	January 1 - December 31, 2020
Sales	$2,200,000
COGS	-999,000
Dividend income	8,000
Interest income on tax-exempt bonds	4,500
Long term capital gain	2,000
Long term capital loss	-9,000
Salaries—officers	-78,000
Salaries—sales and clerical	-126,000
Repairs and maintenance	-65,000
Rent expense	-210,000
Taxes (state, local, and payroll)	-25,000
Interest expense	-58,000
Charitable contributions	-6,000
Depreciation (per books)	-44,000
Advertising	-82,000
Meals	-45,000
Life insurance premiums	-250,000
Federal income taxes paid	-102,000
Tentative Net Income per Books	$115,500

The company provided the following additional information.

The corporation distributed a cash dividend of $120,000 during the year. This distribution is already reflected in the retained earnings balance at the end of the year.
Tax depreciation for the year was $50,000.
The corporation uses the percentage of total accounts receivable method to estimate bad debt, and estimates that 7% of total accounts receivable will be uncollectible. You will need to make and AJE for the adjustment to uncollectable accounts/bad debt expense.
The life insurance premiums of $250,000 listed in the income statement above are premiums the Corporation paid on term policies covering the lives of the three owners, Will, Jon, and Tim. The corporation is the beneficiary (the premium expense is non-deductible for tax purposes).
Dividends received were from the stock of U.S. corporations. The Music Shop, Inc. owns 14% of the outstanding shares of the dividend paying stock.
The company took a physical count of its inventory on the last day of the year. On that date, it was determined that ending inventory was $272,000. You will need to make an AJE for the adjustment to inventory/COGS.

Each of the four $25,500 timely made estimated tax payments were recorded as Federal income taxes paid. Apply any overpayment to the corporation’s 2021 estimated taxes.