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Presentation/PPT
27/08/2022
ACC 404 Corporate Tax Return Project – Summer 2016
Using the following information, prepare a corporate tax return for 2015. It is due on Monday, August 1,
2016. You may work on it in a group with up to two other students (maximum of 3 students per group).
Print your name (or the names of your team members) on a cover page and staple in the top left corner
(no other cover is required).
You can download the tax forms from the IRS website (www.irs.gov). In addition to the basic Form 1120
(all 5 pages), you will need to complete (1) a “white paper schedule” showing the details when several
items need to be added together but the forms do not have space to report the detail or anywhere the
forms state “attach schedule” (such as “other deductions on line 26 of the Form 1120) and (2) your
multi‐column book‐tax reconciliation showing how you determined the items that are reported on
Schedule M‐1 (similar to Example C:3‐51 on page 3‐41 of your textbook). You do not need to compute
any underpayment penalty and do not need to attach any other forms.
Kailua Surf & Swim, Inc. is located at 5432 Lunalilo Road, Kahala, Hawaii 96816. The corporation uses the
calendar year and accrual basis for both book and tax purposes. It is engaged in the retail sale of surfing
equipment and clothing. Its employer identification number is 65‐1234567. It is not a subsidiary or
member of a control group and does not own any foreign entities. The company incorporated on
December 31, 2011 and began business on January 1, 2012.
The book balance sheet at January 1, 2015 and December 31, 2015 are included in a separate excel file
along with the book income statement for 2015.
The corporation made estimated federal income tax payments of $960,000 during 2015.
Organizational expenditures: The corporation incurred $11,000 of organizational expenditures on
January 1, 2012. For book purposes, the corporation expensed the entire amount in 2012. For
tax purposes, the corporation elected under Section 248 to deduct $5,000 in 2012 and amortize
the remaining $6,000 over 180 months. The corporation reports this amortization on Form 4562
but includes it in “other deductions” on Form 1120, Line 26.
Bad Debts: For tax purposes, the corporation uses the direct write off method of deducting bad debts.
For book purposes, the corporation uses the allowance method. During 2015, the corporation
charged $38,000 to the allowance account; this is the amount of actual write offs for 2015.
Capital gains and losses: The corporation sold two blocks of stock this year. One resulted in a $134,000
short‐term capital gain and the other resulted in a $12,000 long‐term capital loss. The
corporation also has an $8,000 capital loss carryover from 2015.
Depreciation: For book purposes, the corporation uses straight‐line depreciation over the useful lives of
assets; this is reflected in the book financial statements. For tax purposes, all assets are MACRS
property and the tax depreciation expense for 2015 is $601,318.
Other information:
The corporation is owned by 3 individual shareholders. One individual owns 50% of the stock
and the other two shareholders each own 25%.
The corporation paid $95,000 in cash dividends to its shareholders during 2015 and charged the
payment directly to retained earnings. This was considered a dividend paid out of earnings &
profits for tax purposes.
The corporation received dividends from taxable, domestic corporations in which it owns 12%.
The state income tax shown in the book financial statements is the same amount of taxes
actually incurred during the year.
Ignore the AMT and accumulated earnings tax.
The corporation is not entitled to any tax credits.
The corporation had no Section 1231 gains or losses in prior years and no net operating losses.
The corporation did not issue any debt instruments with original issue discount.
The corporation is not required to file Schedule UTP.
The corporation did file all appropriate Forms 1099 for the year.
The corporation did not have any change in ownership during the year and did not dispose of
more than 65% of the value of its assets.
The corporation did not receive any assets in a Section 351 transfer with a FMV in excess of $1
million.
The corporation does not qualify for the domestic production activities deduction.
The tax liability owed (that should be reported on line 34 on page 1 of Form 1120) is equal to
the amount of accrued federal income taxes reported on the balance sheet. You do not need to
determine any underpayment penalty.
In assembling the information to prepare Schedule M‐1, I encourage you to do your
reconciliation (getting from book to taxable income) in excel, but please remember to print it
out and attach it to your return. The number shown on line 10 of Schedule M‐1 must agree with
the number shown on page 1, line 28 of Form 1120.
Dollar amounts are all rounded to the nearest dollar. Do not show “00” for the pennies; just
leave the area blank. If there is no dollar amount for a particular line, you can just leave it blank.
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