ACCT 4420 - Tax Return Case on Jewel Clothing Assignment

Assignment Task

Part I 

Jewel Clothing Inc. (JCI) has turned in all its financial records for the current tax year. One of the first steps in preparing the tax return is to prepare an income statement.

Required

Using the information provided in the case, prepare an income statement for JCI for the current tax year to calculate accounting net income (also known as book income). Note: this step must be completed in Excel.

Part II 

Now that an income statement is complete for JCI, it is time to begin preparation for the tax return and the accounting (book) income to taxable income reconciliation. The reconciliation of book income and taxable income is the first step in preparing the tax return.

Required

Prepare a reconciliation of the book income (accounting net income from Part I) to taxable income (must use the reconciliation schedule format from the Chapter 3 lecture handout). Note: this step must be completed in Excel.

Part III 

Now that an income statement and book to tax reconciliation is complete, it is time to prepare the tax return. Also, in this section of the project, you will be preparing a memo describing the tax treatment for a certain deduction.

Required

1. Prepare Forms 1120 for Jewel Clothing, Inc. (JCI) using the tax forms provided by your professor.

2. Prepare a memo describing the tax treatment for handling bad debts. The memo should include the following at a minimum: description of the tax treatment for bad debts, the IRC code section where this tax treatment is found, and a comparison of the tax treatment and financial accounting treatment for bad debts (remember that the taxpayer uses the accrual method of accounting for book purposes). A document providing descriptions of the headings/components to a memo will be available on Canvas.

Part IV

This portion of the project will require you to “file” the tax return for JCI for the current tax year using professional tax software.

Required

1) Register for professional tax software program using instructions provided by your professor.

2) Prepare the current year tax return for JCI using the software program.

Tax Return Additional information

Tax Return Case Information: Jewel Clothing, Inc. (JCI) is a clothing store that operates four small boutique clothing stores (family clothing stores) in Cleveland, Cincinnati, Columbus, and Toledo, Ohio. The company incorporated on February 2, 2000, and they began business on 4/17/2000. The following information is relevant to the case:

• The employer identification number is 3
• The principal business activity code is [Note: this code can be found by searching the business activity code document posted to Canvas.]
• JCI is owned by the following shareholders: Jennifer Lyons, Rachel Smith, and Brad Jones. Jennifer owns 50% of the shares of outstanding common stock, while Rachel and Brad each own 25% of the shares of outstanding common stock. No other class of stock is authorized.
• Jennifer (SS# 245-86-7454) is the CEO and President, Rachel (SS# 355-14-2698) is COO, and Brad (SS# 441-72- 8584) is CFO. Each serve the company in a full-time position and have a salary of $170,000. Jennifer’s address is 851 Shady Elm Ave, Cincinnati, Ohio 45280; Rachel’s address is 3500 S Main St, Cincinnati, Ohio 45280; and Brad’s address is 437 Waterpark Dr, Cincinnati, Ohio 45280.
• The corporation uses the accrual method of accounting and follows GAAP; the company reports on a calendar basis. Inventories are determined using FIFO and the lower of cost or market method.
• JCI has never changed its inventory method or written down any subnormal goods. The rules of Section 263A (UNICAP) do not apply to JCI.
• JCI did not receive any assets in Section 351 transfers during the year.
• JCI wrote off $35,000 in accounts receivable as uncollectible during the year (bad debts).
• JCI maintains a life insurance policy on the CEO, Jennifer Lyons, and the CFO, Brad Jones. JCI is the beneficiary of those policies.
• JCI has a NOL carryover of $75,030 from tax year 2021.
• For book purposes, JCI uses the straight-line method of depreciation, and JCI uses MACRS depreciation for the tax return. (Note: depreciation should be entered on directly on Form 4562 [Part III] in ProConnect).
• During the year, the corporation was required to file Forms 1099 and did file them in a timely manner.
• There is not enough information given in the case to prepare Form 4526 for JCI for the current tax year.
• During the year, JCI contributed $215,000 to their local YMCA.
• JCI had the following sales of stock during the current tax year:
  • Details of sale of Microsoft Corp stock: JCI purchased 4,000 shares of Microsoft Corp. stock on September 1, 2017, for $14/share (including commission). On July 10, of the current year, JCI sold 2,500 shares of Microsoft for $80,000 (including commission). JCI received a 1099-B reporting the sale proceeds. Box 6b was checked on the Form 1099-B.
  • Details of sale of Amazon Inc stock: JCI purchased 6,000 shares of Amazon Inc. stock on October 2, 2021, for $120,000 (including commission and fees). JCI sold half of its Amazon Inc stock on March 12 of the current tax year for $18/share. Box 6b was checked on the Form 1099-B.
• During the year, JCI made timely quarterly income tax deposits to the IRS of $44,000.
• During the year, the corporation distributed a cash dividend of $30,000 to each shareholder and had sufficient E&P to make the distribution.
• JCI’s average annual gross receipts have never exceeded $29 million annually.

This ACCT4420 - Banking and Finance has been solved by our PhD Experts at My Uni Paper.