- You are provided with the unadjusted trial balance (Microsoft® Excel) and your manager's meeting notes and questions (Microsoft® Word) for your new tax client - Phoenix Medical.
- Following the notes, modify the unadjusted trial balance to generate a trial balance workpaper (in Microsoft® Excel) that includes:
- Adjusting Journal Entries
- Adjusted Book Income
- Tax Journal Entries
- Taxable Income
- Answers to your manager's questions (Microsoft® Word or Excel).
- The client depends on you, the CPA, to provide journal entries for activity in fixed assets. While discussing fixed assets, the client divulges that he got a great deal to upgrade his laser dermatology equipment. Ultimately, you find out that $569,888 of new equipment was purchased and placed in service on 6/18/2014.
- Furthermore, and much after the fact, you discover that old medical equipment was sold to an unrelated party for $75,000 cash. The original cost of the equipment was $300,000 and it was fully depreciated (no Sec. 179). The cash was deposited in one of the shareholders personal accounts.
- Provide a journal entry to calculate the gain on sale and adjust the fixed asset and accumulated depreciation accounts.
- What is the nature of this gain?
- Could the Dr. have structured this sale in a different way to avoid taxable income? How?
- The client depends on his accountant to provide a journal entry for the annual depreciation expense. They have adopted a policy of treating book depreciation equal to tax depreciation. Depreciation expense for the year will include:
- Depreciation on assets placed in service prior to 2014 is: $86,769
- Maximize Sec. 179 expense on assets placed in service in 2014.
- Take Sec. 168(k) - 50% Bonus - on new equipment if applicable.
Determine Taxable Income:
- Determine taxable income. Show all adjustments in the Microsoft® Excel spreadsheet. Footnote references are provided to assist you.
- The Dr. has filed his prior tax returns on the cash basis.
- What questions will you ask to be sure he can continue to file on the cash basis?
- You find that in 2014, the Dr. qualifies, and choose to file on the cash basis. His books are kept on the accrual basis. Determine the adjustments needed.
- No federal taxes were paid in 2013, and no estimated taxes were paid in 2014.
- Within the state tax expense, you find $4,389 is late payment penalties.
- While analyzing the financial information, you find that hidden in "Accounts Payable" is $28,953 of accrued salaries. You also find that the salaries were paid in the first week of February.
- Does this have an impact on taxable income?
- Determine the accrual to cash adjustments for accounts receivable and accounts payable.
- A charitable contribution carryforward of $40,000 is available.
Included in insurance expense is $12,523 of officers' life insurance. You determine the company is the beneficiary, and each officer is a greater than 20% shareholder.