Required: 3. Compute the balance due with the Company's 2021 federalreturn and its 2021 state return.4. Prepare the necessary journal entry to record the Company's current income tax expense based upon theamounts computed in requirements 2 and 3. Echo Corporation (the Company) maintains its books andrecords and prepares its outside financial statements on theaccrual method. The Company qualifies for and files its incometax returns on the cash method. The Company does not dobusiness in any state except Virginia and files asCorporation. The tax rate in Virginia is a flat 6%.The Companyuses as calendar year end.service corporation. The Company's trial balance for 2021follows. The Company is exempt from the business interestexpense limitations of IRC section 163(j).а СThe Company is not a personalEcho CorporationTrial Balance12.31.21DebitCreditCash75.000Accounts receivable185,000Allowance for doubtful accounts3,700Instalment note receivableEquipmentAccumulated depreciationAccounts payable795,000795,00014,000Common stock2,500Retained eamings85,300Sales785.000Interest on instalment note receivable750DepreciationLabor15,000150,000Materials450,000Bad debt expense2,500Fines and penaltiesInterest expense2504,500Federal taxes7,500State income tax expense1,5001,686,2501,686.250 Additional Information1. As of December 31, 2020, the Company's AccountsReceivable totaled $125,000 and its Accounts Payable atthat same date totaled $48,000.2. In connection with the closing of the Company's 2021books, the Company decided to increase its allowance fordoubtful accounts by $2,500 based on 2% of its year endaccounts receivable balance. The beginning of the yearallowance for doubtful accounts totaled $1,200 and therewere no write offs during calendar year 2021.3. The Company made estimated tax payments for itsexpected federal and state taxes for 2021 of $7,500 and$1,500, respectively. These amounts were paid during2021.4. There was no balance due with either the Company'sfederal or state tax returns for 2020.5. During 2021, the Company purchased a piece of equipment(purchased on 1.1.21) and paid $150,000 cash. Theequipment is expected to have a zero-salvage value and auseful life of 10 years. The Company recorded the bookdepreciation on a straight-line basis and the Company'scontroller has correctly calculated tax depreciation on thisequipment to be $30,000 for the year ended December 31,2021.6. The Company paid a fine of $250 for late filing of a federalform 941 related to its payroll deposits for the month ofNovember when the Company's payroll clerk was on anextended leave.7. The Company's accounts receivable relates exclusively tocustomer sales and the Company's accounts payable relatesexclusively to purchases of materials.8. During 2021, the Company collected the final payment onan instalment sale from the Company's year endedDecember 31, 2018. Receipt of this payment was properlyrecorded, during 2021, as a debit to cash of $26,000, acredit to instalment note receivable of $25,250, and a creditto instalment interest income of $750. At the time of the2018 instalment sale the gross profit on the sale wasproperly computed at 30 percent.

Deferred taxes arise out of only temporary differences because of either future taxable or…

Echo Corporation (the Company) maintains its books and records and prepares its outside financial statements on the accrual method. The Company qualifies for and files its income tax returns on the cash method. The Company does not do business in any state except Virginia and files as a C Corporation. The tax rate in Virginia is a flat 6%. The Company uses as calendar year end. The Company is not a personal service corporation. The Company's trial balance for 2021 follows. The Company is exempt from the business interest expense limitations of IRC section 163(j). Echo Corporation Trial Balance 12.31.21 Cash Accounts receivable Allowance for doubtful accounts Instalment note receivable Equipment Accumulated depreciation Accounts payable Common stock Retained earnings Sales Interest on instalment note receivable Depreciation Labor Materials Bad debt expense Fines and penalties Interest expense Federal taxes State income tax expense Debit 75,000 185,000 0 795,000 15,000 150,000 450,000 2,500 250 4,500 7,500 1,500 1,686,250 Credit 3,700 795,000 14,000 2,500 85,300 785,000 750 1,686,250

Echo Corporation (the Company) maintains its books and records and prepares its outside financial statements on the accrual method. The Company qualifies for and files its income tax returns on the cash method. The Company does not do business in any state except Virginia and files as a C Corporation. The tax rate in Virginia is a flat 6%. The Company uses as calendar year end. The Company is not a personal service corporation. The Company's trial balance for 2021 follows. The Company is exempt from the business interest expense limitations of IRC section 163(j). Echo Corporation Trial Balance 12.31.21 Cash Accounts receivable Allowance for doubtful accounts Instalment note receivable Equipment Accumulated depreciation Accounts payable Common stock Retained earnings Sales Interest on instalment note receivable Depreciation Labor Materials Bad debt expense Fines and penalties Interest expense Federal taxes State income tax expense Debit 75,000 185,000 0 795,000 15,000 150,000 450,000 2,500 250 4,500 7,500 1,500 1,686,250 Credit 3,700 795,000 14,000 2,500 85,300 785,000 750 1,686,250

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter5: Introduction To Business Expenses

Section: Chapter Questions

Problem 67P

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