C-Corporation Tax Return

Adapted from AICPA Case Studies

The Avian Company is a wholesaler of water coolers. It was formed 10/1/1996 and has
always had a fiscal year ending December 31. It uses accrual accounting to maintain its
books and file its tax returns. The company's address is: 620 River Drive, Philadelphia
PA. The corporation has a single class of common stock outstanding.
Obtain the company's audited trial balance prepared for its financial statements in the
accompanying excel file. Your assignment is to calculate the corporation's income tax
liability AND book income tax expense and prepare the corporation's financial statements
and its income tax return, Form 1120 for the year ended December 31, 2012. The trial
balance is complete for financial statement purposes EXCEPT for the adjusting journal
entry to record income tax expense and tax liability. Note well: the trial balance has been
prepared for financial statement purposes, not federal tax purposes. Some items will be
different for the tax return. There are 2 parts to this project. Each has its own due date.
The specific project requirements for each part are listed at the bottom of this file.
The due dates for each part are listed on your class schedule.
As per the course syllabus, you must complete this by yourself [or in a group of
two]. You may not seek help from or work with other fellow students or seek help
from anyone else. You may ask for help FROM ME only. It is much better to have
some errors than to get caught cheating on this project!!! The consequences are
DIRE if you are caught cheating!!
Information:
1. Analysis of the Allowance for Doubtful Accounts shows:
Beginning of year balance $38,476
Provision for the year 17,667
Write-offs in the year (14,037)
End of year balance on 12/31 $42,106
2. All charitable contributions were made in cash to qualified organizations.
3. Four estimated federal income tax payments of $60,000 were made timely.
4. Entertainment expenses consist only of reimbursements for business meals &
entertainment incurred by the company's officers & sales force.
5. $3,560 of the interest income was earned on investments in tax-exempt state bonds.
The rest of the interest income was earned from investments in taxable corporate
bonds. Dividend income is from shares of Microsoft Corporation. The company
owns much less that 1% of the outstanding shares.
6. The company owns several insurance policies on the lives of its officers and key
employees. The company is the beneficiary of these policies. Premiums on these
policies cost $26,670 this year.
7. MACRS depreciation for tax purposes is $253,000.
8. All appropriate financial reporting adjustments have been made to the trial balance
except for the provision for income taxes. You will need to calculate and record an
adjusting journal entry for the book income tax expense to complete the book basis
trial balance in order to produce the GAAp basis financial statements..
Requirements:
Part 1. A. Write the adjusting journal entry [in proper journal entry form] for book tax
expense & tax liability AND prepare financial statements, specifically, a [book basis]
balance sheet, income statement and retained earnings statement. Your tax expense
adjusting entry should include a debit to book tax expense, a credit to tax prepayments
and a debit or credit to deferred tax and a credit to tax liability (if any). Note: as per (3)
above, the company has made timely estimated tax payments. Do you see these on the
companys trial balance?
Part 1. B. Prepare a schedule (as we have done in class) showing the book to tax
differences. Your schedule that you hand in should begin with book Net Income (after
tax) and end with Taxable Income.
Part 2. Complete the Form 1120. Attach a list for line 26 (page 1). Be sure that you
properly complete page 1 and page 5 [schedules L, M-1, M-2] of the form 1120. NOTE:
you do not have any information for the beginning of the year balance sheet for schedule
L; thus you can complete ONLY the end of the year balance sheet. Note also: points will
be allocated to a properly completed and balanced schedule L, M-1 & M-2. Download
Form 1120 from IRS website. You can type directly onto the form. I expect you to hand
in a typed written return. DO NOT hand in a hand written return.