Tax return problem is C: 8-68 which can be found on page 8-49 of your text. You will need to prepare a 2020 corporate tax return utilizing tax software. You should prepare the return as if you are the tax preparer and all required schedules, forms and answers to questions should be provided.
I wanted to provide you with some additional information to help you with this assignment:
Intercompany sales: For purposes of the intercompany sales between the two entities. Assuming T’s gross profit ratio for its sales to Flying Gator is the same 44% ($550,000 ÷ $1,250,000) gross profit ratio for all its sales, the gross receipts and cost of goods sold associated with the deferred gross profits from the intercompany inventory sales are as follows:
Deferred from preceding year to current year:
Gross profit = $40,700; gross receipts ÷ 0.44 = $92,500
Cost of goods sold = $92,500 – $40,700 = $51,800
Deferred from current year to next year:
Gross profit = $45,100; gross receipts ÷ 0.44 = $102,500
Cost of goods sold = $102,500 – $45,100 = $57,400
Current-year net adjustments
Gross receipts: $92,500 – $102,500 = $(10,000)
Cost of goods sold: $(51,800) – $(57,400) = $5,600. The two amounts are negative
because cost of goods sold reduces gross profit.
Dividend Exclusion: Exclusion of dividend T pays to Flying Gator. Adjustment is needed because the dividends are included in Flying Gator’s separate taxable income calculation.
Matching rule with respect to intercompany interest: Under the matching rule, Flying Gator’s interest income is matched with T’s interest
expense. The group includes T’s interest expense on Line 18, and it includes Flying Gator’s
interest income on Line 5.
Capital gain income: ($3,000) NSTCL + $6,000 NLTCG + $20,000 net Sec. 1231 gain = $23,000 T’s capital
gain net income.
Loss on intercompany transaction: The $9,000 loss on Flying Gator’s land sale to T is deferred under the intercompany
There is Charitable contribution deduction limitation that must be calculated:
Dividends-received deduction and intercompany dividends You must calculate the dividends received deduction. A dividends-received
deduction is not allowed for the $100,000 dividend T pays to Flying Gator because it is
excluded from consolidated income.
In addition, please use the attached excel spreadsheet to aid you in developing the taxable income to be reflected on a consolidated basis on the return.
I am attaching an excel spreadsheet for you to utilize in the preparation of the tax return for this assignment . The assignment focuses on the adjustments needed in order to correctly prepare a consolidated return. This evening’s lecture will focus on consolidated returns.
You only need to submit page 1 of Form 1120 and the excel spreadsheet that I am providing to you. You do not need to sign the return nor provide any other schedules.