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  • 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.

     


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