Beta Corporation (the Company), which is an environmental service company, is taxed as a C Corporation and has a calendar accounting period. The Company files its income tax return (form 1120) on the accrual method of accounting. The Company's gross receipts for each of the years ended December 31, 2018-2020 have exceeded $50 million dollars and the Company is not otherwise exempted from the requirements of IRC Sec 163(j). The Company's trial balance for the year ended December 31, 2021, is as follows. Note: The Company does not have any floor plan financing interest expense and the Company files income tax returns in Virginia only and the tax rate in Virginia is a flat 6%. Beta Corporation Trial Balance 12.31.21 Debit Credit Cash 25,000 Accounts receivable 230.000 Equipment Accumulated depreciation 1,750,000 1.750.000 Intangible assets 145,000 Accumulated amortization 14,500 Accounts payable Notes payable bank 45,000 2.000.000 Common Stock 5,000 Retained earnings 1,777,000 Sales 54,250,000 175,000 Depreciation Amorization 14,500 Labor 53,745,000 Fines and penalties Interest expense 3,000 200,000 58,064,500 58,064,500 Required: 1. Determine the Company's limitation (if any) with respect to its ability to deduct interest expense for the year ended December 31, 2021. 2. Determine the Company's carryforward of interest expense, if any, to years subsequent to December 31, 2021. 3. In both cases, show all computations.
Beta Corporation (the Company), which is an environmental service company, is taxed as a C Corporation and has a calendar accounting period. The Company files its income tax return (form 1120) on the accrual method of accounting. The Company's gross receipts for each of the years ended December 31, 2018-2020 have exceeded $50 million dollars and the Company is not otherwise exempted from the requirements of IRC Sec 163(j). The Company's trial balance for the year ended December 31, 2021, is as follows. Note: The Company does not have any floor plan financing interest expense and the Company files income tax returns in Virginia only and the tax rate in Virginia is a flat 6%. Beta Corporation Trial Balance 12.31.21 Debit Credit Cash 25,000 Accounts receivable 230.000 Equipment Accumulated depreciation 1,750,000 1.750.000 Intangible assets 145,000 Accumulated amortization 14,500 Accounts payable Notes payable bank 45,000 2.000.000 Common Stock 5,000 Retained earnings 1,777,000 Sales 54,250,000 175,000 Depreciation Amorization 14,500 Labor 53,745,000 Fines and penalties Interest expense 3,000 200,000 58,064,500 58,064,500 Required: 1. Determine the Company's limitation (if any) with respect to its ability to deduct interest expense for the year ended December 31, 2021. 2. Determine the Company's carryforward of interest expense, if any, to years subsequent to December 31, 2021. 3. In both cases, show all computations.
Chapter26: Tax Practice And Ethics
Section: Chapter Questions
Problem 32P
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Question
Transcribed Image Text:Beta Corporation (the Company), which is an environmental
service company, is taxed as a C Corporation and has a calendar
accounting period. The Company files its income tax return
(form 1120) on the accrual method of accounting. The
Company's gross receipts for each of the years ended December
31, 2018-2020 have exceeded $50 million dollars and the
Company is not otherwise exempted from the requirements of
IRC Sec 163(j). The Company's trial balance for the year ended
December 31, 2021, is as follows. Note: The Company does not
have any floor plan financing interest expense and the Company
files income tax returns in Virginia only and the tax rate in
Virginia is a flat 6%.
Beta Corporation
Trial Balance
12.31.21
Debit
Credit
Cash
25,000
Accounts receivable
230,000
Equipment
Accumulated depreciation
1,750,000
1,750,000
Intangible assets
145.000
Accumulated amortization
14,500
Accounts payable
Notes payable bank
45,000
2,000,000
Common Stock
5,000
Retained earnings
1,777,000
Sales
54,250,000
Depreciation
175,000
Amorization
14,500
Labor
53,745,000
Fines and penalties
Interest expense
3,000
200,000
58,064,500 58,064,500
Required:
1. Determine the Company's limitation (if any) with respect to
its ability to deduct interest expense for the year ended
December 31, 2021.
2. Determine the Company's carryforward of interest expense,
if any, to years subsequent to December 31, 2021.
3. In both cases, show all computations.
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