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Week 3 Determine Adjusted Book Income:

1. You are provided with the unadjusted trial balance (Microsoft Excel) and your managers meeting notes and questions (Microsoft Word) for your new tax client Phoenix Medical.

2. Following the notes, modify the unadjusted trial balance to generate a trial balance workpaper (in Microsoft Excel) that includes:

a. Adjusting Journal Entries

3. The client depends on you, the CPA, to provide journal entries for activity in fixed assets. While discussing fixed assets, the client divulges that he got a great deal to upgrade his laser dermatology equipment. Ultimately, you find out that $569,888 of new equipment was purchased and placed in service on 6/18/2014.

4. Furthermore, and much after the fact, you discover that old medical equipment was sold to an unrelated party for $75,000 cash. The original cost of the equipment was $300,000 and it was fully depreciated (no Sec. 179). The cash was deposited in one of the shareholders personal accounts.

a. Provide a journal entry to calculate the gain on sale and adjust the fixed asset and accumulated depreciation accounts.

5. 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 2014 is: $86,769

b. Maximize Sec. 179 expense on assets placed in service in 2014.

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 2014, 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 2013, and no estimated taxes were paid in 2014.

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.

8. A charitable contribution carryforward of $40,000 is available. 9. 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

ONLY THE PORTION BELOW NEEDS TO BE COMPLETED TO SELL OBSOLETE EQUIPMENT & DEPRECIATION/SEC179.

	Date		Num		Memo		Account		Debit		Credit
	########		2014 Adj 1		to sell obsolete equipment		17000 Accumulated Depreciation
					to sell obsolete equipment		16100 Medical Equipment
					to sell obsolete equipment		18100 Loan to Shareholder
					to sell obsolete equipment		75000 Gain on Sale of Assets
									0.00		0.00
	########		2014 Adj 2		to record 2014 depreciation on assets placed in service prior to 2014		62400 Depreciation Expense
					to record 2014 depreciation on assets placed in service prior to 2014		17000 Accumulated Depreciation
					to record Sec. 179 expense		62400 Depreciation Expense
					to record Sec. 179 expense		17000 Accumulated Depreciation
					to record depreciation on assets placed in service in 2014		62400 Depreciation Expense
					to record depreciation on assets placed in service in 2014		17000 Accumulated Depreciation
									0.00		0.00
TOTAL									0.00		0.00

					Dec 31, 14		Dec 31, 13		$ Change
ASSETS
	Current Assets
		Checking/Savings
			10001 Checking		609,842.00		277,131.00		332,711.00
			10010 Savings		557,392.23		325,541.23		231,851.00
			10020 Cash Maximizer		558,380.05		69,672.05		488,708.00
		Total Checking/Savings			1,725,614.28		672,344.28		1,053,270.00
		Accounts Receivable
			11000 Accounts Receivable		260,990.00		826,113.00		-565,123.00
		Total Accounts Receivable			260,990.00		826,113.00		-565,123.00
		Other Current Assets
			18100 Loan to Shareholder		75,000.00		0.00		75,000.00
		Total Other Current Assets			75,000.00		0.00		75,000.00
	Total Current Assets				2,061,604.28		1,498,457.28		563,147.00
	Fixed Assets
		15000 Furniture and Equipment			40,316.00		40,316.00		0.00
		15500 Leasehold Improvements			506,889.00		506,889.00		0.00
		16100 Medical Equipment			1,399,776.00		1,129,888.00		269,888.00
		17000 Accumulated Depreciation			-1,568,773.00		-1,240,071.00		-328,702.00
	Total Fixed Assets				378,208.00		437,022.00		-58,814.00
	Other Assets
		18001 Investment in Big Labs			3,206,518.00		2,306,518.00		900,000.00
		18050 Investment in R&D Company			866,507.20		364,352.20		502,155.00
	Total Other Assets				4,073,025.20		2,670,870.20		1,402,155.00
TOTAL ASSETS					6,512,837.48		4,606,349.48		1,906,488.00
LIABILITIES & EQUITY
	Liabilities
		Current Liabilities
			Accounts Payable
				20001 Accounts Payable	93,648.00		107,245.00		-13,597.00
			Total Accounts Payable		93,648.00		107,245.00		-13,597.00
			Credit Cards
				20100 Credit Cards	39,065.51		34,742.51		4,323.00
			Total Credit Cards		39,065.51		34,742.51		4,323.00
			Other Current Liabilities
				20200 Accrued Salaries	28,953.00		26,375.00		2,578.00
			Total Other Current Liabilities		28,953.00		26,375.00		2,578.00
		Total Current Liabilities			161,666.51		168,362.51		-6,696.00
		Long Term Liabilities
			28001 Business Loan		1,207,401.72		1,333,423.72		-126,022.00
		Total Long Term Liabilities			1,207,401.72		1,333,423.72		-126,022.00
	Total Liabilities				1,369,068.23		1,501,786.23		-132,718.00
	Equity
		30100 Capital Stock			1,000.00		1,000.00		0.00
		31400 Shareholder Distributions			-400,000.00		0.00		-400,000.00
		32000 Retained Earnings			3,103,563.25		3,103,563.25		0.00
		Net Income			2,439,206.00		0.00		2,439,206.00
	Total Equity				5,143,769.25		3,104,563.25		2,039,206.00
TOTAL LIABILITIES & EQUITY					6,512,837.48		4,606,349.48		1,906,488.00

		Unadjusted Balance				Book Adjustments				Adjusted Book Balance				Tax Adjustments				Adjusted Tax Balance
		Debit		Credit		Debit		Credit		Debit		Credit		Debit		Credit		Debit		Credit
	10001 Checking	609,842.00								609,842.00								609,842.00
	10010 Savings	557,392.23								557,392.23								557,392.23
	10020 Cash Maximizer	558,380.05								558,380.05								558,380.05
	11000 Accounts Receivable	260,990.00								260,990.00								260,990.00
	18100 Loan to Shareholder				Adj 1					0.00								0.00
	15000 Furniture and Equipment	40,316.00								40,316.00								40,316.00
	15500 Leasehold Improvements	506,889.00								506,889.00								506,889.00
	16100 Medical Equipment	1,699,776.00					Adj 1			1,699,776.00								1,699,776.00
	17000 Accumulated Depreciation			1,240,071.00			Adj 1 & 2					1,240,071.00								1,240,071.00
	18001 Investment in Big Labs	3,206,518.00								3,206,518.00								3,206,518.00
	18050 Investment in R&D Company	866,507.20								866,507.20								866,507.20
	20001 Accounts Payable			122,601.00	r							122,601.00								122,601.00
	20100 Credit Cards			39,065.51								39,065.51								39,065.51
	20200 Accrued Salaries	0.00					r					0.00								0.00
	28001 Business Loan			1,207,401.72								1,207,401.72								1,207,401.72
	30100 Capital Stock			1,000.00								1,000.00								1,000.00
	31400 Shareholder Distributions	400,000.00								400,000.00								400,000.00
	32000 Retained Earnings			3,103,563.25								3,103,563.25								3,103,563.25
	43700 Fee for Service Income			5,050,583.00								5,050,583.00			a					5,050,583.00
	47300 Refunds	17,633.00								17,633.00								17,633.00
	60000 Advertising and Promotion	1,252.00								1,252.00								1,252.00
	60200 Automobile Expense	11,961.00								11,961.00								11,961.00
	60400 Bank Service Charges	8,808.00								8,808.00								8,808.00
	61000 Business Licenses and Permits	5,611.00								5,611.00								5,611.00
	61100 Charitable Contributions (Cash)	60,000.00								60,000.00			b					60,000.00
	61700 Computer and Internet Expenses	13,575.00								13,575.00								13,575.00
	62400 Depreciation Expense				Adj 2					0.00								0.00
	62500 Dues and Subscriptions	8,327.00								8,327.00								8,327.00
	62600 Equipment Rental	201,106.00								201,106.00								201,106.00
	62600 Equipment Rental:62610 Laser Facility Rent	14,979.00								14,979.00								14,979.00
	63300 Insurance Expense	55,356.00								55,356.00								55,356.00
	63400 Interest Expense	63,678.00								63,678.00								63,678.00
	63600 Laboratory Testing Fees	121,653.00								121,653.00								121,653.00
	64300 Meals and Entertainment	16,725.00								16,725.00					c			16,725.00
	64400 Medical Records and Supplies	103,456.00								103,456.00								103,456.00
	66700 Professional Fees	123,945.00								123,945.00								123,945.00
	67200 Repairs and Maintenance	18,855.00								18,855.00								18,855.00
	67800 Salaries and Wages	321,580.00								321,580.00								321,580.00
	67800 Salaries and Wages:67810 Officer Compensation	940,000.00								940,000.00								940,000.00
	68000 Taxes:68010 Payroll Taxes	206,103.00								206,103.00								206,103.00
	68000 Taxes:68020 State Tax	35,041.00								35,041.00					d			35,041.00
	68500 Uniforms	16,121.00								16,121.00								16,121.00
	68600 Utilities	30,364.00								30,364.00								30,364.00
	70200 Interest Income			833.00								833.00								833.00
	70222 Tax Exempt Interest			17,621.00								17,621.00	e							17,621.00
	70300 Sublease Rents			240,000.00								240,000.00								240,000.00
	71000 Dividends			80,000.00								80,000.00								80,000.00
	75000 Gain on Sale of Assets						Adj 1					0.00								0.00
	M-1 Accrual to Cash - Accounts Payable									0.00		0.00	f					0.00
TOTAL		##########		##########		0.00		0.00		##########		11,102,739.48		0.00		0.00		##########		###########
										Book Income		2,992,908						Tax Income		2,992,908
Book Adjustments											Book Income Check Figure	553,702
Adj 1	Sale of fixed assets
Adj 2	2014 Depreciation
r	Reclass of accounts payable
Tax Adjustments
a	Accrual to Cash Adjustment - Accounts Receivable
b	Charitable contributions carryover
c	50% Meals and Entertainment
d	Non-deductible penalties
e	Tax Exempt interest
f	Accrual to Cash Adjustment - Accounts Payable

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