I need some help on my corporate tax return project with the reconciliation sheet.

Here is all the information that provided:

The company had the following income and expenses on its GAAP-basis income statement for 2020:

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Landscaping service income

507,813 

Cost of Goods Sold

(156,250)

Muni-bond Interest Income

3,125 

Capital gain

50,000 

Salaries & Wage Expense

(214,844)

Fine

(5,000)

Advertising Expense

(9,375)

Entertainment Expense

(4,688)

Bad Debt Expense

(7,500)

Depreciation Expense

(27,300)

Federal income tax expense

(29,934)

Net book income

 $     106,047 

Other information: 

1)     Because of your knowledge of the 2.5-month rule for compensation accruals, you asked the client whether all compensation accrued on the books was paid out within 2.5 months of year-end. The client responded that the book accrual for salaries and wages included $20,000 of accrued vacation expense that was not taken by employees during the first quarter of 2020.

2)     You asked the client for their bad debt expense information and they provided you with this rollforward: 

Reconciliation of the client’s bad debt allowance account for 2020:

Beginning Bad Debt Allowance

85,000 

Increases in the allowance

7,500 

Accounts written off during the year

(3,500)

Ending Bad Debt Allowance

89,000 

3)     You asked the client about their depreciation on the books and their preference for bonus depreciation. They tell you that they straight line depreciation for book purposes. Regarding bonus depreciation, the company will utilize bonus depreciation if it is allowable for 2020. They also took 100% bonus depreciation on assets placed into service in 2018 and 2019 and only used MACRS depreciation in all years prior to 2018. 

4)     Since this is your first tax return on the job and you were not sure how to begin calculating tax depreciation for the assets, you asked your senior for a little help. The senior gave you some help on the asset lives: general business equipment is 7-year property, office equipment is 5-year, and furniture is 7-year. The senior said that you should know the rules for real estate (building and land) and if not, to consult your ACC 330 book/notes. Your senior reminded you that you will need to calculate the 2020 depreciation for prior year assets as well. You should determine what year of depreciation you are in (year 1, year 2, etc. based on the year of purchase) and use the applicable depreciation percentage from the tables for that year for each asset. For example, if the asset was purchased in 2019, 2020 would be the second year (year 2) of depreciation to look up in the tables. The senior kindly provided you with a table to use for your working papers (see the following page). 

5)     Since you know that there are special rules regarding prepayments of service income from your journey through Chapter 6 of your ACC 330 class, you asked the client if they had any prepayments. The company received prepayments as follows: 

●      $15,000 in 2020. One-quarter of the consulting services related to this payment were performed in 2020, one-quarter will be performed in 2021, and the remainder will be performed in 2022.

The client also clarified that service revenue pertaining to the prepayments above that was earned during 2020 is properly included in the landscaping service revenue on the client’s income statement.

6)     You asked the client what the capital gain on the income statement was for. The client replied that the company sold stock held for investment to help purchase business equipment. The client reminded you that they incurred a capital loss in 2019 for $25,000 that was not deductible on the 2019 tax return due to no offsetting capital gains. 

7)     Your senior reminded you to check back in your notes from Chapter 6 of your ACC 330 class to re-familiarize yourself with the book and tax treatment of income and expense items that might be relevant to the tax return. The senior recommended that you use a worksheet to reconcile the book numbers to the tax numbers, similar to the comprehensive problem from Chapter 6 so that she can easily review your work. She also asked that you provide as much detail as possible in your working papers and make sure to explicitly calculate the total tax for line 31 of the tax return in your working papers. 

8)     The company made $60,000 in estimated tax payments for the 2020 year. If there is an overpayment of tax, the client wants it credited to next years estimated payments. 

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