RESERVES FOR DEPLETION Reserve for Depletion of Leasehold Number 1 at January 1, 1926, amounted to..... Reserve for Depletion of Leasehold Number 2 at Jan- Total Reserve for Depletion of Leases at January $ 8,583.97 6,214.55 . $14,798.52 Depletion of cost of leases was set up by the company on the basis of the life of lease. Reserve for depletion of mine owned in fee amounted to $95,240.80 at January 1, 1926, and it was agreed that the reserve should have been set up on the basis of tons of coal mined, using appraised value. All necessary adjustments of the reserves are to be made and the proper amount set up for the year ending December 31, 1926. The production basis should be followed throughout, and due regard should be had for scrap values. INFORMATION RELATIVE TO DEPRECIATION Reserve for depreciation of fixed assets except mine buildings and equipment on Leases Number 1 and Number 2 has been computed on various bases. On the leased properties the basis used was the life of the leases without reference to scrap values. All depreciation reserves should be adjusted to the production method, and the additions during the year may be assumed to have applied to one-half of the production for the year. The estimated salvage value of fixed assets is as follows: Property Owned in Fee: Mine Buildings and Dwellings (Additions during year will not increase scrap value).. Power Machinery and Mine Equipment.. Mine Cars Tracks and Sidings Tipple (Additions during year will not increase scrap value) Furniture and Fixtures .$7,500.00 II,450.00 3,000.00 None Estimate 400.00 Made 2,100.00 When Purchased Live Stock 1,000.00 Harness and Wagons None Drilled Wells None Mine Buildings and Equipment on Lease No. 1.... 10,250.00 9,600.00 9,650.00 DEVELOPMENT EXPENSE The item of Development Expense of $16,500 represented the original cost of surveying, prospecting and developing the property owned in fee which the company has not written off. This should be adjusted on the basis of tons of coal mined. Balance at January 1, 1926 (as per Trial Balance) Balance at December 31, 1926 (as per Trial Balance) Issue Second Issue Third Issue Fourth Issue Victory Bonds (44's) *Purchased in August. LIBERTY BONDS Prepare a schedule of taxable net income for the year 1926, and a working sheet showing the necessary adjustments of the accounts. 66. Following is a trial balance of the Hallowell Sales Company of Chicago (31 West Lake Street), a sales agency for gas heaters, at December 31, 1925, and 1926: Other information necessary for the return: 1. Incorporated January 15, 1918, under the laws of the state of Illinois. 2. Compensation of officers: Ernest Hallowell, president Beerbohm Maxwell, secretary-treasurer $25,000.00 8,000.00 Both officers devote their entire time to the business; they own 2,000 and 640, respectively, of the 3,000 shares of stock outstanding. 3. Non-deductible interest may be computed on the "inadmissible percentage" method. 4. Sales on account for six years: 5. Furniture which cost $200 was sold for $100 during 1926 and the depreciation reserve properly adjusted. It had been purchased in 1919. 1-1-21 6. On the tax return for 1925, a red figure of $12,554.93 appeared for net income, arrived at as follows: From the above information, using Form 1120, prepare the corporation's tax return for 1926, filling out the ex hibits in full, and following the instructions that are given on the form. 67. From the following information prepare a columnar working sheet which will show the computation of D. E. Jackson's taxable net income for 1926: (a) Mr. Jackson is married, lives with his wife, and has two children, a son aged 19 in the State University and a daughter aged 15 at boarding school. His accounting period is the calendar year. He reports his income on the receipts basis. (b) Mr. Jackson owns a retail store and the following information is submitted on the operations for the year 1926: Sales Merchandise Purchases .$90,000.00 60,000.00 himself) ... Inventory-December 31, 1925.... 18,000.00 Salaries (including $5,000 paid to Personal Property Taxes. 16,000.00 620.00 (c) Directors' fees received from First State Bank ... (d) Compensation as trustee of his father's estate 13,000.00 1,000.00 100.00 1,000.00 |