Review of Ace’s financial reports and information revealed the following: Sales2.4 million Opening inventory650,000 Purchase1.1million Closing inventory585,000 Heat, light utilities300,000 Employee payroll245,000 Executive salary and pension350,000 EPA fines85,000 Life insurance premiums paid47,000 Life insurance collected on death of vice-president500,000 Depreciation expense:GAAP Double declining balancetotal for year85,000 MACRS, including section 179 and special first year,692,000 Income tax paidFederal Regular 62,000, AMT 16,000, New York State/City 27,000 Compute income reported for GAAP purposes and taxable income, if different. Categorize as favorable/unfavorable a differences.Are they timing or permanent differences? 2. Betta Inc. has 100 shares outstanding.As of January 1, 2016 Betta had 200,000 earnings and profits from prior years.On June 30, 2016 Betta paid a dividend of 35 per share to all shareholders.Bob and his three brothers each owned 25 shares of Betta.Each invested $10,000 to start the company and made no further investment in Betta.In November 2016 Bob and his wife got divorced and he needed money to pay her settlement.To raise the cash needed bob sold 10 shares of Betta back to Betta as treasury stock.Betta gave Bob $65,000 in cash and the car he was driving, cost 62,000, fair market value, 38,000, basis $20,000. On December 31, 2016 when Betta closed its books for the year there was a profit of $10,000. Compute Bob’s treatment of the money he received and his basis in the remaining shares he owned. 3. Carl and Dan agree to form a partnership on January 2, 2016.Each will get a 50% share of profit.Carl will invest $50,000 ($25,000 in cash and a parcel of land, value today $75,000, cost in 2002 25,000) and Dan will do the necessary accounting and legal work to form the partnership.If Dan did that amount of work for a regular client he would have charged $50,000. The partnership sold the land for $80,000 on December 10, 2016. Profit for 2016 was $10,000.What will each report on their federal tax return? 4. Sales Inc. was a regular C corporation with only 100 shares issued for many years.In 2015 they filed the necessary forms to become an S corporation as of January 1, 2016.At the time they had $500,000 of retained earnings.They had no cash because they had been using all the profit to pay down the mortgages.All shareholders meet the at-risk and active tests for all transactions.Tom bought his 50 shares for 50,000 when Sales was formed in 1996.Vic bought his 25 shares in 2011 for $200,000.Wes bought his 25 shares in 2014 for $350,000.In 2016 Sales made a profit of $900,000.They used the profit to purchase real estate.There were no distributions to shareholders. What will Tom, Vic and Wes report on their income tax returns for 2016?
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