TAX FORM$/$RETURN PREPARATION PROBLEMS

C:$3-66$ Melodic Musical Sales, Inc. is located at $5500$ Fourth Avenue, City, ST $98765.$ The

corporation uses the calendar year and accrual basis for both book and tax purposes.

It is engaged in the sale of musical instruments with an employer identification number $($EIN$)$ of XX$-2023021.$ The company incorporated on December $31,2017,$ and began business on January $2,2018.$ Table C:$3-3$ contains balance sheet information at January $1,2021,$ and December $31,2021.$ Table C:$3-4$ presents an unaudited GAAP income statement for $2021.$ These schedules are presented on a book basis. Other information follows the tables.

$.$ TABLE C:$3-3$

Estimated Tax Payments $($Form $2220)$:

The corporation deposited estimated tax payments as follows:

April $15,2021$ $ $35,000$

June $15,2021190,000$

September $15,2021165,000$

December $15,2021165,000$

Total $$555,000$

Taxable income in $2020$ was $$1\mathrm{.}2$ million, and the $2020$ tax was $$252,000.$ The corpora$-$tion earned its $2021$ taxable income evenly throughout the year. Therefore, it does not use

the annualization or seasonal methods. Assume the underpayment penalty rate remains at

$3\%$ for the second quarter of $2022($regardless of any announced rate change$).$

Inventory and Cost of Goods Sold $($Form $1125-$A$)$:

The corporation uses the periodic inventory method and prices its inventory using the lower

of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should

be reflected on Form $1125-$A$.$ No other costs or expenses are allocated to cost of goods sold.

Note: Assume the corporation is exempt from the uniform capitalization $($UNICAP$)$ rules.

OrganTABLE C:$3-3$

Melodic Musical Sales, Inc.$-$Book Balance Sheet Informationizational Expenditures:

The corporation incurred less than $$5,000$ of organizational expenditures in the year it

began business. For book purposes, the corporation expensed the entire expenditure. For

tax purposes, the corporation elected under Sec. $248$ to deduct the entire amount of ex$-$penditures in the year it began business. Therefore, no amortization expenditures appear

in the tax return or book financial statements for the current year.

Capital Gains and Losses:

The corporation sold $100$ shares of PDQ Corp. common stock on October $8,2021,$ for

$$145,000.$ The corporation acquired the stock on December $11,2020,$ for $$90,000.$

The corporation also sold $75$ shares of JSB Corp. common stock on June $18,2021,$ for

$$110,000.$ The corporation acquired this stock on September $18,2019,$ for $$120,000.$ The

corporation has a $$15,000$ capital loss carryover from $2020.$ These transactions were not

reported to the corporation on Form $1099-$B$.$

Fixed Assets and Depreciation:

For book purposes: The corporation uses straight$-$line depreciation over the useful lives

of assets as follows: store building, $50$ years; equipment, ten years; and trucks, five years.

The corporation takes a half$-$year$$s depreciation in the year of acquisition and the year of

disposition and assumes no salvage value. The book financial statements in Tables C:$3-3$

and C:$3-4$ reflect these calculations.

For tax purposes: All assets are MACRS property as follows: store building, $39-$year nonresidential real property; equipment, seven$-$year property; and trucks, five$-$year property. The

corporation acquired the store building for $$2$ million and placed it in service on January $2,2018.$ The corporation acquired two pieces of equipment for $$250,000($Equipment $1)$ and $$500,000($Equipment $2)$ and placed them in service on January $2,2018.$ The corporation acquired the trucks for $$100,000$ and placed them in service on July $18,2019.$ The trucks are not listed property and are not subject to the limitation on luxury automobiles.

The corporation did not make the expensing election under Sec. $179$ or take bonus deprecia$-$tion on any property acquired before $2021.$ Accumulated tax depreciation through Decem$-$ber $31,2020,$ on these properties is as follows:

Store building $ $151,780$

Equipment $1140,675$

Equipment $2281,350$

Trucks $52,000$

On October $16,2021,$ the corporation sold for $$280,000$ Equipment $1$ that originally

cost $$250,000$ on January $2,2018.$ The corporation had no Sec. $1231$ losses from prior

years. In a separate transaction on October $17,2021,$ the corporation acquired and placed

in service a piece of equipment costing $$600,000.$ Assume these two transactions do not

qualify as a like$-$kind exchange. The new equipment is seven$-$year property. The corpora$-$tion made the Sec. $179$ expensing election with regard to the new equipment for the entire

cost of this property. Where applicable, use published IRS depreciation tables to compute $2021$ depreciation $($reproduced in Appendix C of this text$).$

Required: Prepare the $2021$ corporate tax return for Melodic Musical Sales, Inc. along

with any necessary supporting schedules.

Optional: Prepare both Schedule M$-3($but omit Schedule B and Form $8916-$A$)$ and Sched$-$ule M$-1$ even though the IRS does not require both Schedule M$-1$ and Schedule M$-3.$