The Book is Financial Management for Public, Health, and Not-for-profit organization, third edition, by Steven A. Finkler
The question is between pages 442-444
CASE STUDY called
Individual Rehabilitation Services (IRS)
Individual Rehabilitation Services (IRS) is a not-for-profit organization that assists individuals returning to society following substance abuse conviction. IRS has been greatly successful in its urban efforts. Thus, more resources are needed.
Late last year, IRS began a restaurant operation, The Golden Kettle, which specializes in soups. Last year's operation was a break-even effort. At the beginning of the year, The Golden Kettle relocated to a mall.
It has been clearly established by the District Director of the Internal Revenue Service (the other IRS) that income generated by The Golden Kettle will be unrelated business income.
Required
Determine the minimum federal income tax liability and the taxes owed at the time of filing based on the following data:
Cash receipts: 160,900 (Sales of $156,100 plus $4,800 donated to the IRS by Golden Kettle customers)
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Cash Disbursements
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Merchandise purchases $52,000
Wages and related payroll taxes (a) 20,870
Rent---space and equipment (b) 3,600
Property insurance (c) 2,850
Equipment purchases (d) 15,000
Loan payments (e) 1,200
Utilities 1,400
Food license (f) 400
Professional fees (g) 1,900
Repairs and maintenance (R&M) (h) 950
Advertising and promotion (i) 4,000
Taxes (j) 10,000
Telephone 480
Supplies 1,300
Miscellaneous 520
TOTAL $116,470
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Other Information
1. IRS is an accrual-basis, calendar-year taxpayer.
2. Inventory information FIFO LIFO
Beginning Inventory $12,000 $11,200
Ending Inventory $14,000 $12,100
3. Explanation of notes:
a. Includes employer's share of FICA.
b. Rent is $250/month. A $350 security deposit was made and the final month's rent was paid in advance on an 18 month lease.
c. Two assets are insured:
Inventory -$150 (a floating figure based on monthly inventory levels). Tangible personal property --$2,700 (a three year policy that was acquired on July 1 of the current year).
d. Additional equipment not provided by the owner of the facility is required and acquired. Information pertaining to this equipment is shown below.
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Current Calss
Life
____________________________Year____Depreciation_____________________________________Cost____________
Cash register 5 year $5,000 $1,000(20% X $5,000)
Broaster 7 year $10,000 $1,430 (14.3X$10,000)
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e. $200 a month to Buckner Bank on a $3,000 loan used to purchase the equipment in (d). Interest expense is $450.
f. $200 is paid on January 1 and July 1 to the city controller who issues a six-month license at those dates.
g. Breakdown of this expense indicated:
$200-Preparation of prior year's tax return
$600-Payment to an architect for her plans, which will be used to build another restaurant in the near future.
$1,100 Attorney fee in settling a claim brought by a customer who claimed that she was served undercooked foo, which led to her illness.
h. The previous customer claim brought about an extensive inspection by the health department, which ordered several changes (costing $650) in the operation and fined IRS $300. The $300 is included in the $950 R & M figure. (Note that fines are not deductible on a federal income tax return).
i. Includes $1,600 of newspaper advertising plus $2,400 paid for a Yellow Pages ad that will appear in next year's telephone directory, which will be distributed in October of next year.
j. Estimated federal income tax payments during the year.
See Next page for what I have done so far – but I really do not know where to go from here.
My book really doesn’t explain anything on how to compute payments, if it does I am not really understanding it.
