Key Assignment Draft
The owners of The Car Wash have asked you to prepare their tax return. Their financial statements are audited by a local certified public accountant (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
Income Statement
December 31, 20XX
Revenue:
Service Revenue
$254,603
Expenses:
Advertising
2,520
Depreciation
31,250
Insurance
7,260
Interest expense
36,204
Licenses and fees
7,260
Miscellaneous
4,074
Office expense
8,911
Salaries and wages
67,460
Payroll taxes
9,444
Employee benefits
1,349
Professional fees
1,210
Repairs and Maintenance
20,674
Telephone
900
Travel
1,500
Utilities
27,752
Net income before taxes
26,835
Balance Sheet
January 1, 20XX
December 31, 20XX
Assets
Cash
$28,638
$64,979
Buildings and other depreciable assets
555,000
555,000
Accumulated depreciation
(62,500)
(93,750)
Total assets
521,138
526,229
Liabilities and equity
Loans
183,757
167,962
Mortgage
233,229
227,280
Equity investment
160,000
160,000
Retained earnings
(55,848)
(29,013)
Total liabilities and equity
$521,138
$526,229
Deliverable Length:Prepare the tax return for your client, addressing the following 2 scenarios:
Scenario 1:The Car Wash is a corporation.
Scenario 2:The Car Wash is a limited liability company (LLC).
Obtain the appropriate tax return forms at the following Web site and save them to your computer:
www.irs.gov
Instructions for how to prepare the applicable forms are available at the same Web site. You may directly input text and numbers on to these forms using Reader. The forms do not self-calculate. Once complete, upload your tax return to the submitted assignments.
Complete all of the requested attachments for the applicable tax return.
Assume the following:
The initial investment for each owner was $80,000. Each owner has an equal interest in the business.
A $30,000 salary was paid to each owner. A part-time employee was paid $7,460.
The loans and mortgage are long-term obligations.
The annual tax depreciation on the car wash building is $47,453.
The $555,000 property was depreciated for tax purposes using a 15-year recovery period, half-year convention (HY) and the Modified Accelerated Cost Recovery System (MACRS) depreciation method.
Assume no change in the tax depreciation when calculating whether the alternative minimum tax applies.
The organization does not have any carry forward net operating losses or tax credits.
The organization does not qualify for any current year tax credits.
Assume the following for a corporation:
The corporation made estimated payments of $3,000 in 2010.
Assume the business owners want to receive any applicable refunds.
Only common stock has been issued.
Assume the following for a partnership:
The salary paid to each owner is a guaranteed payment.
Partnership profit, losses, and capital are shared 50/50.
The loans and mortgage are both recourse debt.
Neither owner is a LLC member-manager.
The K-1 should reflect the partner’s capital account according to the United States’ Generally Accepted Accounting Principles (U.S. GAAP).
Please submit your assignment.
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