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Analyzing A Corporate Tax Return: Zeus Inc.

Research Paper Instructions:

Week 5 Assignment - Analyzing a Corporate Tax Return
Overview
You are a senior tax accountant in the firm, Ernest & Rainhouse. Joe, a new junior accountant, has just prepared his first corporate tax return for Zeus, Inc. The electronic filing system has rejected the Zeus, Inc.'s Form 1120: U.S. Corporation Income Tax Return 2020 [PDF]✎ EditSign due to errors and omissions. Joe is seeking your help in determining his mistakes and in answering some corporate tax questions he is unsure about. You are to read the scenario below and then follow the instructions.
Scenario
Zeus, Inc. is organized as a corporation and is taxed as a C corporation with a calendar year end. Zeus, Inc. owns and operates an amusement park in Los Angeles, California. Zeus, Inc.’s address, employer identification number (EIN), and date of incorporation are as follows:
Zeus, Inc.
77 Sunset Strip.
Los Ageles, CA 90028.
EIN: 56-1234567.
Date incorporated: July 1, 2010.
Zeus, Inc. is owned by 77 shareholders. No person or entity owns directly 20% or more, or owns, directly or indirectly, more than 50% of the voting stock of Zeus, Inc. No one is from outside of the United States.
Zeus, Inc. uses the accrual method of accounting. Zeus, Inc. is not audited by a CPA firm. It does, however, use GAAP-based financial statements and has never had a restatement of its income statement.
Zeus, Inc. reported the following information for 2020:
Zeus, Inc. made payments that required it to file federal form(s) 1099. The 1099s were filed timely.
Zeus, Inc. average annual gross receipts for the prior three years are under $26,000,000.
Zeus, Inc. elects to file a complete Schedule M-3 even if only M-1, or a partial M-3, is required.
Additional Information Used in the Preparation of Zeus, Inc. Financial Statements:
On August 1, 2020, Zeus, Inc. was notified by its legal counsel that Zeus, Inc. was being sued by a former employee regarding her termination of employment from Zeus, Inc. On December 21, 2020, a legal settlement was reached with this terminated employee. As part of the settlement, Zeus agreed to pay the employee a settlement amount of $190,000 on January 10, 2021. Zeus, Inc. accrued this expense on its 2020 financial statements.
Zeus, Inc. owns 12% of Fun Fair of Russia, a Russian corporation operating a theme park on the outskirts of Moscow. Fun Fair of Russia remitted dividends to Zeus, Inc. of $14,000. Zeus, Inc. also received $300 in dividends from holding marketable securities (all less than 20% owned by Zeus, Inc.).
From inception until this year, Zip Coaster has been Zeus’s main attraction, but it aged and lost appeal. Zeus, Inc. purchased a new attraction known as the Swirlwind. The Swirlwind was installed and placed in operation on March 1, 2020, at a cost of $6,000,000 to acquire and place into service.
Zeus, Inc. rents its amusement equipment from vendors. As of December 31, 2019, and December 31, 2020, respectively, Zeus, Inc. has prepaid vendors for equipment rental of $30,000 for January 2020 and $35,000 for January 2021.
On December 26, 2020, Zeus, Inc. prepaid a contractor $17,500 to repair three pieces of maintenance shop equipment. Zeus, Inc. fully expects that the contractor will have completed the project by January 31, 2020.
As of December 31, 2019, and 2020, respectively, Zeus, Inc. had vacation accruals on its books of $29,000 and $35,000.
On December 2, 2020, Zeus, Inc. held an advertising give-away of $100,000.
Zeus, Inc. rents part of their unused land. Zeus, Inc. received a check for $50,000 on December 27, 2020, for 6-months rental beginning January 1, 2021. The lease contains a clause that the rent is nonrefundable to the renter under any circumstances.
During the year, Zeus, Inc. made the following estimated tax payments:
Estimated Tax Payments
Date Federal Estimated Tax Payment California Estimated Tax Payment
4/15/2020 $72,500 $15,000
6/15/2020 $72,500 $15,000
9/15/2020 $72,500 $15,000
12/15/2020 $72,500 $15,000
On December 1, 2020, Zeus Inc. paid $400,000 dividends to all common stockholders.
Additional Information Used in the Preparation of Zeus, Inc. Corporate Tax Return:
Zeus, Inc. maintains a portfolio of tax-exempt securities and publicly traded stocks as a measure to provide immediate liquidity if needed. All of these securities originate from less than 20% owned domesic corporations. Zeus, Inc. paid an attorney $10,000 in obtaining the tax-exempt securities.
Zeus’s regular tax depreciation for the year is correctly calculated as $1,112,499 (from previous year’s purchases) before considering the 2020 addition of the Swirlwind. Because of the Swirlwind’s modular design, it is considered personal property. (Not real property.)
Near the end of the year, Zeus, Inc. switched its property and casualty insurance company. As a result, the plan year for its insurance contract was altered. On December 31, 2020, Zeus, Inc. prepaid insurance premiums of $25,000 representing coverage through February 15, 2021, as a condition of being accepted by the new company. Zeus, Inc. did not expense any of the prepayments for financial accounting purposes.
Zeus, Inc.'s officer information for the year is as follows: (Compensation amounts included in total wages on the income statement for all employees.)
Officer Information
Name Social Security # % of Time Devoted to Business % of Stock Owned Amount of Compensation
Margo Harrington 123-45-6789 100% .05% $235,000
Dean Williams 987-65-4321 100% .03% $195,000
Dennis Johns 456-78-9321 100% 0% $165,000
Jamie Conway 321-45-6978 100% 0% $150,000
All the accrued wages and bonus amounts on the financial statements as of December 31, 2019, were paid on February 28, 2020.
The winner of the advertising give-away of $100,000 was presented the check on January 15, 2021.
As of March 15, 2020, and 2021, respectively Zeus, Inc. had paid $5,000 and $8,000 of the vacation accrued amounts.
Zeus, Inc. Financial Statements:
Balance Sheet
Instructions
Write 3-5 page paper in which you do the following
Identify at least three errors or omissions on the Zeus, Inc.'s Form 1120: U.S. Corporation Income Tax Return 2020 [PDF]✎ EditSign, justifying selections with IRS codes, IRS regulations, court cases, or FASB statements.
Explain the criteria that requires the use of M-3 and describe how it is more beneficial to the financial statement user.
Explain at least two IRS approved methods available to Zeus Inc. to make estimated tax payments, explaining and justifying the preferred method.
Explain the relationship of a corporation’s tax year and their financial reporting year, explaining at least two complications. Provide how to mitigate the two complications that might arise in preparingZeus Inc’s income tax provision for the financial statements.
Use at least two quality sources to support your writing. Choose sources that are credible, relevant, and appropriate. Cite each source listed on your source page at least one time within your assignment
Writing contains accurate grammar, mechanics, and spelling in accordance with SWS style.
This course requires the use of Strayer Writing Standards. For assistance and information, please refer to the Strayer Writing Standards link in the left-hand menu of your course. Check with your professor for any additional instructions.
fic course learning outcomes associated with this assignment:
Analyze a corporate tax return to collect the required information for the preparation of a corporate tax return.
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Research Paper Sample Content Preview:

Corporation Tax Return
Your Name
Subject and Section
Professor’s Name
May 16, 2022
Understanding the importance of tax returns is essential for any financial manager. It allows him to find the most accurate and efficient way to report income while also maintaining compliance with the Generally Accepted Accounting Principles (GAAP). In this article, the author would like to focus on the case of Joe, who is trying to prepare the first corporate income tax return for Zeus Inc. Particularly; the following sections will try to determine the various lapses in the company’s Form 1120 (US Corporation Income Tax Return), which resulted in the rejection of its corporate income tax return. The author believes that being able to determine these discrepancies as soon as possible is essential for a more accurate, efficient, and strategic reporting for every financial manager.
Analyzing Corporate Tax Returns
One of the issues in Zeus Inc’s Tax Return is the errors and omissions in its Form 1120, such as (1) non-inclusion of a date, (2) lack of signature, and (3) failure to check the Initial Return Box.
First, the inclusion of a date in the signature box for the preparer is one of the issues that could have caused the rejection of Form 1120. Section 6695(b) of the Internal Revenue Code (IRC) provides explicitly that one of the forms that require the signature of a Tax Return Preparer is Form 1120 CITATION Blond \l 1033 (Bloomberg Tax, n.d.). This signature verifies and makes the preparer accountable under the penalty of perjury for any alterations, omissions, or untruthful statements. In other words, the lack of signature by the one who prepared the tax return is one of the reasons for its rejection.
Second, the non-inclusion of a filing date in Form 1120 is also one of the reasons for its rejection. The United States Internal Revenue Service (IRS) provides that the deadline for filing a Form 1120 is the “15th day of the 4th month after the end of the corporation's tax year” CITATION Smi22 \l 1033 (Smith, 2022). However, it could be seen from the declaratory portion of Tax Return Preparer that the date was omitted. This, again, may have caused the outright rejection of the form.
Finally, one of the most important reasons the form was rejected was the failure of the preparer to check Item E of the form, which pertains to the “Initial Return” section. Zeus Inc. is merely filing its first corporate tax return, which means that it should have checked the item above to ensure compliance with the requirements of the IRS CITATION Dimnd \l 1033 (Dimitrova, n.d.).
Use of M-3 Form
A Schedule M-3 is one of the forms that corporations must use to reconcile deficiencies in their Net Income (loss) and Taxable Income as provided in Form 1120 CITATION USInd \l 1033 (US Internal Revenue Service, n.d.). However, before a corporation may use this form, specific criteria must be followed, namely; (1) the total assets of the company are greater than or equal to ten million USD ($10 million) as provided in Schedule L, (2) the entity partnered with another entity has a readily available report, which shows a 50% interest on the capital shares of another, (3) that the...
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