Assignemnt
The owners of The Car Wash have asked you to prepare their tax return. Their financial statements are audited by a local certified public accounting (CPA) firm, and they have provided them to you as a reference. A copy of the Income Statement and Balance Sheet have been reproduced below. In your discussion, you obtained the following pieces of additional information to prepare the tax return:
• Name of business owner: Tim Smith, SSN:123-45-6789
• Tim Smith's address: 8765 Warner Street, Huntington Beach, CA 92605
• Name of business owner: Jack Dillard, SSN: 987-65-4321
• Jack Dillard's address: 4321 Courtyard Place, Huntington Beach, CA 92605
• Business name: The Car Wash
• Business address: 1046 Broadway Street, Huntington Beach, CA 92605
• Business description: Self-Service Car Wash
• Employer identification number: 99-8877665
• Date the business started: January 1, 2008
• Business will file its return using the cash basis of accounting
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Income Statement
December 31, 20XX
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Revenue:
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Service revenue
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$254,603
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Expenses:
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Advertising
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2,520
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Depreciation
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31,250
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Insurance
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7,260
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Interest expense
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36,204
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Licenses and fees
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7,260
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Miscellaneous
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4,074
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Office expense
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8,911
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Salaries and wages
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67,460
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Payroll taxes
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9,444
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Employee benefits
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1,349
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Professional fees
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1,210
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Repairs and maintenance
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20,674
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Telephone
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900
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Travel
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1,500
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Utilities
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27,752
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Net income before taxes
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$26,835
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Balance Sheet
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January 1, 20XX
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December 31, 20XX
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Assets
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Cash
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$28,638
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$64,979
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Buildings and other depreciable assets
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555,000
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555,000
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Accumulated depreciation
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(62,500)
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(93,750)
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Total assets
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521,138
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526,229
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Liabilities and equity
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Loans
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183,757
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167,962
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Mortgage
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233,229
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227,280
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Equity investment
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160,000
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160,000
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Retained earnings
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(55,848)
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(29,013)
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Total liabilities and equity
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$521,138
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$526,229
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Part I
• Adjust and make any changed to your IP4 tax returns based on faculty feedback. Include your finished and fully edited version for Part 1.
Part II
Deliverable Length: 800-1,100 words
Your client has been informed that an S corporation is a popular business form and wants to know more about it. Please write a professional memo to your client responding to his inquiry. Be sure to at least discuss the following items:
• What is an S corporation?
• When is it advisable to be taxed as an S corporation?
• How does an organization become an S corporation?
• If The Car Wash is a corporation, can they be taxed as an S corporation?
o Why or why not?
o What criteria must be met?
• If The Car Wash is a LLC, can it be taxed as an S corporation?
o If so, what does it need to do to elect S corporation status?
• How would The Car Wash report and pay tax if it is an S corporation?