══════════════════════
Memo: Whomever
Date: A few minutes ago …
From: Marie, Advanced Federal Taxation P.C.
Re: 2007 Tax Return for New Client
I received a call late last night from a prospective new client: Sunset Surfing, Inc. If we impress them – one way or the other -- they likely will tell people about us. They even went out of the way to come by my office very early this morning before a breakfast meeting.
The information they gave me is summarized in Corporations, S Corporation, and Partnerships Practice Sets beginning on page 1. Note that this is the information they gathered for their 2006 tax return, which was filed on time by their last accountant. They have been too busy to get us a copy of the last return.
They gave me this information because they did pretty much the same in 2007 as in 2006. Also, they could give me nothing else -- no previous returns or current information -- because everything was on Jared’s laptop and the hard drive crashed on the flight into L.A. yesterday.
They asked me to prepare 2007 tax return based on the information provided and gave me 20 questions. You are to provide me with the answers to the 20 questions.
They want the answers to the questions as soon as possible.
Prepare the Corporate Return (Form 1120) for Sunset Surfing, Inc. and give the amount for each of the following line items.
1. Gross Profit (line 3) ______________
2. Dividends (line 4) ______________
3. Total Income (line 11) ______________
4. Charitable Contribution (line 19) ___ ____
5. Depreciation (line 20) _$172,204_given___
6. Total Deductions (line 27) _______________
7. Special Deductions (line 29b) ______________
8. Taxable Income (line 30) ______________
9. Total Tax (line 31) ______________
10. Tax due (line 34) ______________
11. Overpayment (line 35) ______________
12. Waterman Compensation Sch. E) ______________
13. Method of Accounting (Sch. K, line 1) ______________
14. Tax Exempt Interest Rec (Sch. K line 9) ______________
15. Total Assets at Yearend (Schedule L) ______________
16. Year end Unappropriated
Retained Earnings (Sch L) ______________
17. Net Income (loss) per books (Sch M-1) ______________
18. Beginning Unappropriated
Retained Earnings (Sch. M-2,line 1) ______________
19. Distributions (Schedule M-2, line 5) ______________
20. Ending Unappropriated
Retained Earnings (Schedule M-2 line 8) _$512,272__given_
To answer the 20 questions and provide the amounts for each line item on the Corporate Return (Form 1120) for Sunset Surfing, Inc., you will need to gather the necessary information and calculations.
1. Gross Profit (line 3): The gross profit is calculated by subtracting the cost of goods sold from the company's total revenue. To calculate this, you will need the revenue and cost of goods sold information for Sunset Surfing, Inc.
2. Dividends (line 4): Dividends received by the corporation are reported on line 4 of Form 1120. You will need to determine if Sunset Surfing, Inc. received any dividends during the tax year.
3. Total Income (line 11): Total income is the sum of all the income items reported on the corporation's tax return. You will need to gather the information on all sources of income for Sunset Surfing, Inc.
4. Charitable Contribution (line 19): If Sunset Surfing, Inc. made any charitable contributions during the tax year, you will need to determine the amount and report it on line 19 of Form 1120.
5. Depreciation (line 20): The amount of depreciation expense for the tax year needs to be reported on line 20. It appears that the amount of depreciation given for Sunset Surfing, Inc. is $172,204.
6. Total Deductions (line 27): This includes all deductible expenses for the corporation. You will need to gather information on all the deductible expenses incurred by Sunset Surfing, Inc.
7. Special Deductions (line 29b): Certain expenses may qualify for special deductions. You will need to determine if Sunset Surfing, Inc. has any special deductions that can be claimed on line 29b.
8. Taxable Income (line 30): Taxable income is calculated by subtracting the total deductions from the total income. To determine the taxable income for Sunset Surfing, Inc., you will need the amounts calculated for lines 11 and 27.
9. Total Tax (line 31): The total tax owed by Sunset Surfing, Inc. is calculated based on the taxable income and the applicable tax rate. You will need to calculate the total tax amount based on the taxable income.
10. Tax due (line 34): The tax due is the amount of tax owed by Sunset Surfing, Inc. after considering any credits or estimated tax payments. You will need to calculate the tax due amount based on the total tax and any credits or estimated tax payments.
11. Overpayment (line 35): If Sunset Surfing, Inc. has made any excess tax payments or has any credits that exceed the tax liability, the overpayment amount can be claimed on line 35.
12. . Waterman Compensation (Sch. E): The compensation paid to . Waterman should be reported on Schedule E. You will need to determine the compensation amount for . Waterman.
13. Method of Accounting (Sch. K, line 1): The method of accounting used by Sunset Surfing, Inc. should be reported on Schedule K, line 1.
14. Tax Exempt Interest Rec (Sch. K, line 9): Any tax-exempt interest received by Sunset Surfing, Inc. should be reported on Schedule K, line 9.
15. Total Assets at Yearend (Schedule L): The total assets of Sunset Surfing, Inc. at the end of the tax year should be reported on Schedule L.
16. Year-end Unappropriated Retained Earnings (Sch. L): The balance of unappropriated retained earnings at the end of the tax year should be reported on Schedule L.
17. Net Income (loss) per books (Sch. M-1): The net income or loss per books should be reported on Schedule M-1.
18. Beginning Unappropriated Retained Earnings (Sch. M-2, line 1): The balance of unappropriated retained earnings at the beginning of the tax year should be reported on Schedule M-2, line 1.
19. Distributions (Schedule M-2, line 5): Any distributions made to shareholders during the tax year should be reported on Schedule M-2, line 5.
20. Ending Unappropriated Retained Earnings (Schedule M-2, line 8): The balance of unappropriated retained earnings at the end of the tax year should be reported on Schedule M-2, line 8. The given amount for this line item is $512,272.
By gathering the necessary information and performing the calculations based on the given information, you will be able to provide the amounts for each of the line items on the Corporate Return (Form 1120) for Sunset Surfing, Inc.