a.Compute and explain the adjustment to taxable income that Ross must make due to the change in accounting method. b.When must Ross include this adjustment in its income?
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Ross Company is a C corporation providing property management services. Ross has used the cash method since inception because its gross receipts did not exceed $26,000,000. This year its average annual gross receipts for the prior three years crossed the $26,000,000 mark, requiring Ross to change from the cash method to the accrual method (per § 448). At the end of its prior year, Ross had
a.Compute and explain the adjustment to taxable income that Ross must make due to the change in accounting method.
b.When must Ross include this adjustment in its income?
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- Ross Company is a C corporation providing property management services. Ross has used the cash method since inception because its gross receipts did not exceed $26,000,000. This year its average annual gross receipts for the prior three years crossed the $26,000,000 mark, requiring Ross to change from the cash method to the accrual method. At the end of its prior year, Ross had accounts receivable of $850,000 and accounts payable of $540,000. Compute and explain the adjustment to taxable income that Ross must make due to the change in accounting method. When must Ross include this adjustment in its income?Weld Corporation is constructing a plant for its own use. Weld capitalizes interest on an annual basis. The following expenditures are made during the current year: January 1, $102,000; July 1, $986,000; September 1, $2,720,000; and December 31, $7,174,000. The following debts were outstanding throughout the current year. Debt Construction note, 12% Short-term note payable, 15% Amount $340,000 1,360,000 Accounts payable (noninterest-bearing) 1,360,000 Note: Round all of your answers to the nearest whole number or whole percentage point. a. Compute the amount of interest to be capitalized during the year. Calculation of Actual Interest Debt Debt Amount Interest rate Interest Amount Specific Debt Construction loan $ 340,000 12 % $ 40,800 General Debt Note payable $ 1,360,000 15% Total Actual Interest $ 204,000✔ 244,800 Calculation of Weighted Average Accumulated Expenditures Weighted Avg. Date January 1 July 1 $ Expenditures 102,000 ✔ 986,000 ✔ Months outstanding Accum. Expenditures 12 $…Sailor, Inc., a calendar year corporation, reported $1,003,000 net income before tax on its financial statements in accordance with GAAP. The corporate records reveal the following information: •Depreciation expense per books was $45,000, and the corporation’s MACRS depreciation deduction was $74,000. •Two years ago, Sailor Inc. realized a $75,000 gain on the sale of investment property and elected to use the installment method to report the gain for tax purposes. Its gross profit percentage is 25% and it received a $50,000 principal payment on its installment note this year. •Marketable securities were sold to Sailor’s only shareholder for $35,000. Sailor purchased the securities two years ago for $45,000. •Business equipment was sold for $50,000. The original cost of the equipment was $100,000. Book accumulated depreciation through the date of sale was $42,000, and MACRS accumulated depreciation through the date of sale was $60,000. •UNICAP rules require the firm to recognize $90,000…
- A hospitality corporation is preparing its annual reports. The accounting records show sales of $250,000, and expenses, excluding depreciation, at $175,000. The company elects to use different depreciation methods for financial and tax reporting purposes. Depreciation for accounting purposes is $40,000, and for tax purposes the depreciation expense is $65,000. Compute the income before income taxes on the financial statements and the taxable income on the income tax return.Gosling, Inc., a calendar year, accrual basis corporation, reported $756,000 net income after tax on its financial statements prepared in accordance with GAAP. The corporation's financial records reveal the following information: Gosling earned $3,500 on an investment in tax-exempt municipal bonds. Gosling received an advance payment of rent this year for $25,000. This amount was not included in book income. Gosling's depreciation expense per books was $72,000, and its MACRS depreciation deduction was $105,000. Gosling recorded $58,000 of business meals and $27,000 of entertainment expense for book purposes. Gosling's federal income tax expense per books was $220,000. a. Compute Gosling's taxable income and regular tax liability. b. Prepare a Schedule M-1, page 5, Form 1120, reconciling Gosling's book and taxable income.Song Incorporated reported pretax book income of $10,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by $200,000. Song Incorporated sold a fixed asset and reported book gain of $50,000 and tax gain of $75,000. Finally, the company received $250,000 of tax-exempt life insurance proceeds from the death of one of its officers. Assuming a tax rate of 21 percent, compute the company's deferred income tax expense or benefit.
- Armitage Inc. has earned gross receipts of about $10 million for the past 3 years. This year it earns gross receipts of $10,600,000. Armitage has $5,000 of business interest income, $400,000 of adjusted taxable income and $200,000 of business interest expense. How much business interest expense can Armitage deduct? Assume the same facts except that Armitage’s gross receipts for the past 3 years have averaged about $30 million. How much business interest can Armitage deduct?Cass Corporation reported pretax book income of $12,870,000. During the current year, the reserve for bad debts increased by $285,000. In addition, tax depreciation exceeded book depreciation by $250,000. Cass Corporation sold a fixed asset and reported book gain of $102,750 and tax gain of $136,500. Finally, the company received $343,000 of tax-exempt life insurance proceeds from the death of one of its officers. Compute the company's current income tax expense or benefit. Note: Round your final answer to nearest whole dollar amount. Amounts to be deducted should be indicated by a minus sign. X Answer is complete but not entirely correct. Pretax book income Bad debt reserve Depreciation Fixed asset gain Tax-exempt life insurance proceeds Taxable income Current income tax expense $ 12,870,000 285,000 (250,000) $ $ 102,750 X (343,000) 250,000 X 136,500 ×EFG, an accrual basis calendar year corporation, reported $742,000 net income before tax on its financial statements prepared in accordance with GAAP. EFG’s records reveal the following information: The allowance for bad debts as of January 1 was $79,000. Write-offs for the year totaled $14,800, and the addition to the allowance for the year was $12,800. The allowance as of December 31 was $77,000. EFG paid a $25,970 fine to the state of Delaware for a violation of state pollution control laws. EFG was sued by a consumers' group for engaging in false advertising practices. Although EFG’s lawyers are convinced that the suit is frivolous, its independent auditors insisted on establishing a $74,200 allowance for contingent legal liability and reporting a $74,200 accrued expense on the income statement. EFG received a $244,860 advanced payment for 10,000 units of inventory on October 20. EFG reported the payment as revenue the following February when the units were shipped.
- Abbot Corporation reported pretax book income of $500,000. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, Abbot received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Abbot's current income tax expense or benefit would be:EFG, a calendar year, accrual basis corporation, reported $479,900 net income after tax on its financial statements prepared in accordance with GAAP. The corporation’s financial records reveal the following information: EFG earned $10,700 on an investment in tax-exempt municipal bonds. EFG’s allowance for bad debts as of January 1 was $21,000. Write-offs for the year totaled $4,400, while the addition to the allowance was $3,700. The allowance as of December 31 was $20,300. On August 7, EFG paid a $6,000 fine to a municipal government for a violation of a local zoning ordinance. EFG’s depreciation expense per books was $44,200, and its MACRS depreciation deduction was $31,000. This is EFG’s second taxable year. In its first taxable year, it recognized an $8,800 net capital loss. This year, it recognized a $31,000 Section 1231 gain on the sale of equipment. This was EFG’s only disposition of noninventory assets. In its first taxable year, EFG capitalized $6,900 organizational costs…On December 31, DePaul Corporation had the following cumulative temporary differences associated with its operations: 1. Estimated warranty expense, $28 million temporary difference: expense recorded in the year of the sale; tax-deductible when paid (one-year warranty). 2. Depreciation expense, $108 million temporary difference: straight-line in the income statement; MACRS on the tax return. 3. Income from installment sales of properties, $60 million temporary difference: income recorded in the year of the sale; taxable when received equally over the next five years. 4. Rent revenue collected in advance, $28 million temporary difference; taxable in the year collected; recorded as income when the performance obligation is satisfied in the following year. Required: Assuming DePaul will show a single noncurrent net amount in its December 31 balance sheet, indicate that amount and whether it is a net deferred tax asset or liability. The tax rate is 25%. Note: Enter your answer in millions…