Permtemp Corporation

| September 29, 2018

Permtemp Corporation formed in 2011 and, for that year, reported the following bookincome statement and balance sheet, excluding the federal income tax expense, deferredtax assets, and deferred tax liabilities:Sales $20,000,000Cost of goods sold )Gross profit $ 5,000,000Dividend income 50,000Tax-exempt interest incomeTotal income $ 5,065,000Expenses:Depreciation $ 800,000Bad debts 400,000Charitable contributions 100,000Interest 475,000Meals and entertainment 45,000OtherTotal expenses )Net loss before federal income taxes )Cash $ 500,000Accounts receivable $ 2,000,000Allowance for doubtful accounts ) 1,750,000Inventory 4,000,000Fixed assets $10,000,000Accumulated depreciation ) 9,200,000Investment in corporate stock 1,000,000Investment in tax-exempt bondsTotal assetsAccounts payable $2,610,000Long-term debt 8,500,000Common stock 6,000,000Retained earnings )Total liabilities and equityAdditional information for 2011:The investment in corporate stock is comprised of less-than-20%-owned corporations.Depreciation for tax purposes is $1.4 million under MACRS.Bad debt expense for tax purposes is $150,000 under the direct writeoff method.Limitations to charitable contribution deductions and meals and entertainmentexpenses must be tested and applied if necessary.Qualified production activities income is zero.Required for 2011:a. Prepare page 1 of the 2011 Form 1120, computing the corporation s NOL.b. Determine the corporation s deferred tax asset and deferred tax liability situation, andthen complete the income statement and balance sheet to reflect proper GAAPaccounting under ASC 740. Use the balance sheet information to prepare Schedule L ofthe 2011 Form 1120.c. Prepare the 2011 Schedule M-3 for Form 1120.d. Prepare a schedule that reconciles the corporation s effective tax rate to the statutory34% tax rate.Note: For 2011 forms, go to forms and publications, previous years, at the IRS website,www.irs.gov.For 2012, Permtemp reported the following book income statement and balance sheet,excluding the federal income tax expense, deferred tax assets, and deferred tax liabilities:Sales $33,000,000Cost of goods sold )Gross profit $11,000,000Dividend income 55,000Tax-exempt interest incomeTotal income $11,070,000Expenses:Depreciation $ 800,000Bad debts 625,000Charitable contributions 40,000Interest 455,000Meals and entertainment 60,000OtherTotal expenses )Net income before federal income taxesCash $ 2,125,000Accounts receivable $ 3,300,000Allowance for doubtful accounts ) 2,850,000Inventory 6,000,000Fixed assets $10,000,000Accumulated depreciation ) 8,400,000Investment in corporate stock 1,000,000Investment in tax-exempt bondsTotal assetsAccounts payable $ 2,120,000Long-term debt 8,500,000Common stock 6,000,000Retained earningsAdditional information for 2012:Depreciation for tax purposes is $2.45 million under MACRS.Bad debt expense for tax purposes is $425,000 under the direct writeoff method.Qualified production activities income is $3 million.Required for 2012:a. Prepare page 1 of the 2012 Form 1120, computing the corporation s taxable incomeand tax liability.b. Determine the corporation s deferred tax asset and deferred tax liability situation, andthen complete the income statement and balance sheet to reflect proper GAAPaccounting ASC 740. Use the balance sheet information to prepare Schedule L of the2012 Form 1120.c. Prepare the 2012 Schedule M-3 for Form 1120.d. Prepare a schedule that reconciles the corporation s effective tax rate to the statutory34% tax rate.

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