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INCOME TAX PROJECT

FACTS

Valerie Lawson and Clara Norman are the sole equal shareholders in the corporation of Lawson And Norman Enterprises, Inc.  Corporation, which is a retail office supplies and stationery store, began its operations on January 2, 1985 (also date of incorporation).  For Federal Income Tax purposes, the corporation is a calendar year taxpayer and uses the Accrual Method Of Accounting.  Its Employee Identification Number is 76-1234567, address is 4369 Robbie Lane Houston, Texas 77026-3915, telephone number is (281) 479-8132, fax number is (281) 567-9024 and E-Mail address is "lawsonandnormanenterprises.com".  Business activity code for the corporation is 453210.  Valerie Lawson is the president of the corporation and its contact person for Federal Income Tax purposes and Clara Norman is the secretary and treasurer of the corporation.  Both are full-time employees of the corporation devoting one hundred percent (100%) of their time to the business and each has an annual salary of $75,000.  Valerie Lawson's social security number is 234-56-7890 and her address is 8124 Annette Court Houston, Texas 77031-9475.  Clara Norman has social security number of 890-12-3456 and her address is 2716 Nanette Drive Houston, Texas 77061-3459.

FINANCIAL INFORMATION

During the year of 2012, Lawson And Norman Enterprises, Inc. reported the following Income and Expenses (including necessary accruals) for Financial Accounting purposes:

        Gross Receipts                                               $1,482,000
        Sales Returns And Allowances                             109,000
        Purchases                                                        510,000   
        Dividends Received From Stock (Not Qualified Dividends)
            Investments In Less Than twenty percent (20%)
Owned United States (U. S.) Corporation                       80,000
        Interest Income:
            Taxable Interest                                           18,000
            Tax-Exempt Interest                                      7,200
        Salaries:  Officers                                            150,000
               Other Employees                                      108,000
        Repairs And Maintenance                                   19,300   
        Rent Expense - Office                                        84,000
        Rent Expense - Equipment                                 15,500
        Payroll Taxes (Federal And State)                       19,600
        Interest Expense                                             25,200
        Advertising Expense                                         44,500
        Charitable Contributions                                    48,000
        Legal And Professional Fees                               28,800
        Depreciation Expense                                        50,000 *
        Utilities Expense                                               27,700
        Employee's Health Insurance Premiums                 14,200
        Entertainment Of Clients                                    5,000
                  Officers' Life Insurance Premiums              14,000 **

* - Based upon Straight-Line Depreciation, a useful life of five (5) years and no salvage value for all  assets (see specific assets below).

** - Lawson And Norman Enterprises, Inc. Is The Designated Beneficiary.

Lawson And Norman Enterprises, Inc. owns the following depreciable assets:

ASSET DESCRIPTION                        DATE ACQUIRED        ORIGINAL COST
Automobile – 2011 Lexus 460                 April 1, 2011              $ 50,000
(Five-year Property)
Automobile – 2011 Cadillac Seville         April 1, 2011                50,000
(Five-year Property)
Furniture And Fixtures                           May 1, 2010              150,000
(Seven-year Property)

Every automobile was used a total of 18,000 miles during the year of 2012 all which were business miles.  The automobiles were not available for personal use during off-duty hours and were used solely by Valerie Lawson and Clara Norman, who both have another vehicle available for personal use. For Federal Income Tax purposes, all of these assets are depreciated using the Modified Accelerated Cost Recovery System (MACRS).  Section 179 Deduction was not elected in regards to any of these assets nor was Straight-Line Depreciation used.

BALANCE SHEETS

Balance Sheets (Financial Accounting) for the Lawson And Norman Enterprises, Inc. at the beginning and ending of the year of 2012 are as follows:

ASSETS                                                   January 1        December 31
Cash                                                       $  36,000          $   84,000
Trade Notes And Accounts Receivable              96,000            90,000
Inventory  (Valued At Cost) *                       120,000             100,000
Marketable Securities - Long Term                 140,000             170,000
Depreciable Assets (And Land)                    260,000 **           260,000 **
Less: Accumulated Depreciation                    (65,000)           (115,000)
Other Assets (Deposits)                               12,000               12,000
                                                             ------------      -------------
TOTAL ASSETS                                           $ 599,000         $ 601,000
                                                               =======         =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable (Non Recourse)                    $    96,000         $ 116,200
Federal Income Taxes Payable                            8,600                     ?
Notes Payable - Short Term (Recourse)              16,000              24,000
Notes Payable - Long Term (Recourse)               164,000            212,000
Common Stock                       10,000               10,000
Retained Earnings (Unappropriated)                   304,400            229,042
TOTAL LIABILITIES AND                                ------------          ------------
         STOCKHOLDERS' EQUITY                      $  599,000          $  601,000
                                                                 =======            =======

*   - The rules of Section 263A of the Internal Revenue Code do not apply to the corporation.

** - Includes $10,000 allocated to Land.

ESTIMATED TAX PAYMENTS

During 2012, Lawson And Norman Enterprises, Inc. made the following estimated tax payments:

                April 17, 2012             $30,000
                June 15, 2012             $20,000
                September 17, 2012     $20,000
                December 17, 2012       $10,000

2011 Federal Income Tax liability for Lawson And Norman Enterprises, Inc. was $76,800 and no overpayment of 2011 Federal Income Tax is being applied to the 2012 Federal Income Tax liability of Lawson And Norman Enterprises, Inc.

OTHER INFORMATION

Both shareholders of Lawson And Norman Enterprises, Inc. are United States Citizens.  Lawson And Norman Enterprises, Inc. does not own directly or indirectly fifty percent (50%) or more of the voting stock in any other domestic corporation and the corporation is not a subsidiary in an affiliated group or a parent-subsidiary controlled group. During the year of 2012, Lawson And Norman Enterprises, Inc. paid cash dividends of $280,000 ($140,000 to each shareholder) and the corporation didn’t pay dividends in excess of the corporation's Current Earnings and Profits and Accumulated Earnings And Profits.  In addition, Lawson And Norman Enterprises, Inc. is not the shareholder in any foreign corporation nor has any interest in or a signature or other authority over any financial account in foreign country. Also, during the year of 2012, the corporation did not receive the distribution from nor was a grantor of, or transferor to, a foreign trust.  Moreover, Lawson And Norman Enterprises, Inc. Didn’t issue publicly offered debt instruments with original issue discount. At last, the corporation had no Net Operating Losses (NOL's) carryover from prior tax years.

REQUIRED

Prepare the C (Regular) Corporation Tax Return for the Lawson And Norman Enterprises, Inc. for the tax year of 2012.  The following Forms are needed to complete the Tax Return:
Form 1120
Form 1125-A
Form 1125-E
Schedule G
Form 4562
Form 4626

                      CHECK FIGURES
FORM 1120
INCOME (Page 1)
1.  Total Income (Line 11): $941,000.

DEDUCTIONS (Page 1)
1.  Charitable Contributions (Line 19): $36,566.
2.  Depreciation (Line 20): $36,037. (Also Line 22 – Form 4562)
3.  Total Deductions (Line 27): $611,903.
4.  Taxable Income (Line 30): $273,097.

SCHEDULE M-1 (Page 5)
1.  Net Income (Loss) Per Books (Line 1): $204,642.
2.  Expenses Recorded On Books This Year
     Not Deducted On This Return (Itemize) (Line 5): $41,897.

SCHEDULE M-2 (Page 5)
1.  Balance At End Of Year (Line 8): $229,042.

Taxation, Accounting

  • Category:- Taxation
  • Reference No.:- M9687

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