Week 3 Determine Adjusted Book Income:

To Equipment A/C

To Gain on Sale of equipment

$75,000

The equipment has fully depreciated. Therefoe the book value of the equipment at this time of sale. $75,000 will be recived as cash at the time of saleof equipment is treated as gain on sale of equipment.

a. What is the nature of this gain?

The gain on sale of equipment os a short term capital in nature.

b. Could the Dr. have structured this sale in a different way to avoid taxable income? How?

6. 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:

a. Depreciation on assets placed in service prior to 2015 is: $86,769

b. Maximize Sec. 179 expense on assets placed in service in 2015.

c. Take Sec. 168(k) - 50% Bonus - on new equipment if applicable.

Week 3 Determine Taxable Income:

1. Determine taxable income. Show all adjustments in the Microsoft® Excel spreadsheet. Footnote references are provided to assist you.

2. The Dr. has filed his prior tax returns on the cash basis.

a. What questions will you ask to be sure he can continue to file on the cash basis?

3. You find that in 2015, the Dr. qualifies, and choose to file on the cash basis. His books are kept on the accrual basis. Determine the adjustments needed.

4. No federal taxes were paid in 2014, and no estimated taxes were paid in 2015.

5. Within the state tax expense, you find $4,389 is late payment penalties.

6. 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.

a. Does this have an impact on taxable income?

7. Determine the accrual to cash adjustments for accounts receivable and accounts payable.

a. A charitable contribution carryforward of $40,000 is available.

b. 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.