Balance Sheet Using Additional Gidgets Gadgets In

By /

Balance Sheet Using Additional Gidgets Gadgets In

Given the income statement and balance sheets of Gidget’s Gadgets Inc. for calendar year 2018:

  1. Use the book depreciation schedule to calculate the tax depreciation and accumulated tax depreciation (cost recovery) for each asset placed in service prior to 2018.
    • a.Calculate the tax gain/loss for each asset sold in 2018. Use total tax accumulated depreciation calculated in #1. Assume assets sold at same time as replacements are purchased.
    • Calculate the book/tax difference
    1. Calculate tax depreciation expense for all assets placed in service in 2018. Use section 179 depreciation for all assets except for new vehicle and real estate. Business usage of new vehicle is 83%. Total miles travelled in 2018 12,200, total commuting miles = 800. Van is 100% business use – total mileage for 2018 = 23,300 miles.
    2. Calculate the book/tax difference
  4. Calculate all other permanent/temporary book/tax differences. Note the following:
    1. direct bad debts write-offs for 2018 = $0.
    2. Officers’ salaries include $75,000 bonus accrued on 12/31/18 to >50% shareholder which was paid to her on January 5, 2019.
    3. Gadget warranty expense for future claims estimated to be $8,000 were accrued at 12/31/18.
  5. Calculate tax expense per book, tax to be paid this year with the tax return and deferred tax liability/asset. Show your calculations (refer to Deferred Tax Worksheet) AND RECORD THE ADJUSTING JOURNAL ENTRY NEEDED TO RECORD THESE ITEMS ON THE BOOKS.
  6. Revise income statement and balance sheet using additional information calculated in #5.
  7. Use the above information to complete Gidget’s income tax return for 2018 using the following forms, available at www.irs.gov :
    1. Form 1120, Pp. 1 & 5 (complete Schedules L, M-1 and M-2 on p. 5)
    2. Schedule D (MAKE SURE IT’S THE SCHEDULE D FOR FORM 1120)
    3. Form 4562 Pp. 1 & 2 (fill out sections A & B for both vehicles)
    4. Form 4797 (Pp. 1&2)
    • Show supplementary schedules for the following:
      • Form 1120 page 1, line 25 “Other Deductions”
      • Any other item that you feel needs further detail display
    Note

    • TAX FORMS MUST BE COMPLETED MANUALLY – YOU AMY NOT USE COMPUTERIZED TAX PROGRAMS TO COMPLETE THIS ASSIGNMENT.NO CREDIT WILL BE GIVEN TO GROUPS WHO DO NOT ADHERE TO THIS RULE.

    Please note that the building, warehouse and associated land for each were acquired on 9/1/15 and not 9/1/18. If you look in book depreciation, you will see that the building and warehouse show depreciation from 2015 on – which would not be the case had they been purchased in 2018.