Case Study Individual Rehabilitation Services (IRS)14 14 Case…

Question Case Study Individual Rehabilitation Services (IRS)14 14 Case… Case StudyIndividual Rehabilitation Services (IRS)1414 Case developed by Ken Milani, University of Notre Dame. Reprinted with permission.Individual Rehabilitation Services (IRS) is a not-for-profit organization that assists individuals returning to society following a substance abuse conviction. IRS has been greatly successful in its urban efforts. Thus, more resources are needed.Late last year IRS began a restaurant operation, The Golden Kettle, that specializes in soups. Last year’s operation was a break-even effort. At the beginning of the year, The Golden Kettle relocated to a mall.It has been clearly established by the district director of the Internal Revenue Service (the other IRS) that income generated by The Golden Kettle will be unrelated business income.RequiredDetermine the minimum federal income tax liability and the taxes owed at the time of filing based on the following data:Cash receipts: $160,900 (sales of $156,100 plus $4,800 donated to IRS by Golden Kettle customers)Cash DisbursementsMerchandise purchases$ 52,000Wages and related payroll taxes (a)20,870Rent—space and equipment (b)3,600Property insurance (c)2,850Equipment purchases (d)15,000Loan payments (e)1,200Utilities1,400Food license (f)400Professional fees (g)1,900Repairs and maintenance (h)950Advertising and promotion (i)4,000Taxes (j)10,000Telephone480Supplies1,300Miscellaneous520Total$116,470Other InformationIRS is an accrual-basis, calendar-year taxpayer.Inventory information  F I F O  L I F OBeginning Inventory  $12,000  $11,200Ending Inventory  $14,000  $12,100Explanation of notes:Includes employer’s share of Federal Insurance Contributions Act (FICA) tax, which funds the Social Security system.Rent is $250 per month. A $350 security deposit was made and the final month’s rent was paid in advance on an 18-month lease.Two assets are insured: inventory—$150 (a floating figure based on monthly inventory levels); tangible personal property—$2,700 (a 3-year policy that was acquired on July 1 of the current year).Additional equipment not provided by the owner of the facility is required and acquired. Information pertaining to this equipment is shown below: Class LifeCostCurrent Year DepreciationDescriptionCash register5-year$ 5,000$1,000 (20% × $5,000)Broaster7-year$10,000$1,430 (14.3% × $10,000)$200 a month is paid to Buckner Bank on a $3,000 loan used to purchase the equipment in (d). Interest expense is $450.$200 is paid on January 1 and July 1 to the city controller, who issues a 6-month license at those dates.Breakdown of this expense indicates:$200—Preparation of prior year’s tax return.$600—Payment to an architect for her plans, which will be used to build another restaurant in the near future.$1,100—Attorney fee in settling a claim brought by a customer who claimed that she was served undercooked food, which led to her illness.The previous customer claim brought about an extensive inspection by the Health Department, which ordered several changes (costing $650) in the operation and fined IRS $300. The $300 is included in the $950 repairs and maintenance figure. (Note that fines are not deductible on a federal income tax return.)Includes $1,600 of newspaper advertising plus $2,400 paid for a Yellow Pages ad that will appear in next year’s telephone directory, which will be distributed in October of next year.Estimated federal income tax payments during the year. Law Social Science Tax law BUS 4075 Share QuestionEmailCopy link Comments (0)