Problem 3-1 (Algorithmic) Schedule C (LO 3.1) Scott Butterfield is self-employed
ID: 2342189 • Letter: P
Question
Problem 3-1 (Algorithmic) Schedule C (LO 3.1) Scott Butterfield is self-employed as a CPA. He uses the cash method of accounting, and his Social Security number is 644-47-7833. His principal business code is 541211. Scott's CPA practice is located at 678 Third Street, Riverside, CA 92860. Scott’s income statement for the year shows the following: Income Statement Scott Butterfield, CPA Income Statement 12/31/2017 Current Period Prior Period 1/1/2017 to 12/31/2017 1/1/2016 to 12/31/2016 REVENUES Tax Services $156,400 $72,154 Accounting Services 15,640 50,256 Other Consulting Services 34,408 7,690 TOTAL REVENUES 206,448 130,100 COST OF SERVICES Salaries 31,280 29,400 Payroll Taxes 2,387 2,275 Supplies 300 1,225 TOTAL COST OF SERVICES 33,967 32,900 GROSS PROFIT (LOSS) 172,481 97,200 OPERATING EXPENSES Advertising and Promotion 2,000 – Business Licenses and Permits 620 250 Charitable Contributions 400 250 Continuing Education 1,500 – Dues and Subscriptions 1,640 3,500 Insurance 9,384 870 Meals and Entertainment 7,038 5,400 Office Expense 3,128 – Postage and Delivery 85 – Printing and Reproduction 1,564 – Office Rent 4,692 13,800 Travel 6,256 750 Utilities 1,877 2,724 TOTAL OPERATING EXPENSES 40,184 27,544 NET INCOME (LOSS) $132,297 $69,656 Scott also mentioned the following: The expenses for dues and subscriptions were his country club membership dues for the year. The charitable contributions were made to a political action committee. Scott does not generate income from the sale of goods and therefore does not record supplies and wages as part of cost of goods sold. Scott placed a business auto in service on January 1, 2014 and drove it 4,093 miles for business, 2,456 miles for commuting, and 4,912 miles for nonbusiness purposes. His wife has a car for personal use.
Explanation / Answer
Form 1040 Department of the Treasury––Internal Revenue Service (99) 2017 U.S. Individual Income Tax Return OMB No. 1545-0074 IRS Use Only—Do not write or staple in this space. For the year Jan. 1--Dec. 31, 2017, or other tax year beginning ,2017, ending See separate instructions. Your first name and initial Last name Your social security number Scott Butterfield 644-47-7833 If joint return, spouse's name & initial Last name Spouse's social security number Home address (number and street). If you have a P.O. box, see instructions. Apt. no. Make sure the SSN(s) above and on line 6c are correct. 678 Third Street, Riverside, City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions). Presidential Election Campaign CA 92860 Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking a box below will not change your tax or Foreign country name Foreign province/state/county Foreign postal code Income 7 Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . 7 0 8 a Taxable interest. Attach Schedule B if required. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8a 0 Attach Form(s) b Tax-exempt interest. Do not include on line 8a . . . . . . . . . 8b 0 W-2 here. Also 9 a Ordinary dividends. Attach Schedule B if required. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9a 0 attach Forms b Qualified dividends . . . . . . . . . . . . . . . . . . . . . . 9b 0 W-2G and 10 Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1099-R if tax 11 Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 was withheld. 12 Business income or (loss). Attach Schedule C or C-EZ. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 132,297 13 Capital gain or (loss). Attach Schedule D if required. If not required, check here. #### 13 If you did not 14 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 get a W-2, 15 a IRA distributions 15a 0 b Taxable amount . . . . . 15b 0 see instructions. 16 a Pensions and annuities 16a 0 b Taxable amount . . . . . 16b 0 17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E. 17 0 18 Farm income or (loss). Attach Schedule F. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 0 19 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 20 a Social security benefits 20a 0 b Taxable amount . . . . . . . 20b 0 21 Other income. List type and amount. 21 0 22 Combine the amounts in the far right column for lines 7 through 21. This is your total income 22 132,297 Part I Income 1 Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the “Statutory employee” box on that form was checked . . . . . . . . . . . . . . 1 206,448 2 Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 206,448 4 Cost of goods sold (from line 42) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 0 5 Gross profit. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 206,448 6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) . . . . . . . . . . . 6 7 Gross income. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 206,448 Part II Expenses Enter expenses for business use of your home only on line 30. 8 Advertising . . . . . . . . . . . . . . . . . . . . . 8 2,000 18 Office Expense (see instructions) . . . . . 18 4,692 9 Car and truck expenses 19 Pension and profit sharing plans . . . . . 19 (see instructions) . . . . . . . . . . . . 9 1,640 20 Rent or lease (see instructions): 10 Commissions and fees . . . . . . . . . 10 620 a Vehicles, machinery and equipment . . . . 20a 11 Contract labor (see instructions) . . . . . 11 b Other business property . . . . . . . . . 20b 4,692 12 Depletion . . . . . . . . . . . . . 12 21 Repairs and maintenance . . . . . . . . 21 85 13 Depreciation and section 179 expense 22 Supplies (not included in Part III) . . . . . 22 300 deduction (not included in Part III) 23 Taxes and licenses . . . . . . . . . . . 23 (see instructions) . . . . . . . . . . . . 13 400 24 Travel, meals and entertainment: 14 Employee benefit programs a Travel . . . . . . . . . . . . . . . 24a 13,294 (other than on line 19) . . . . . . . . . 14 2,387 b Deductible meals and 15 Insurance (other than health). . . . . . . 15 9,384 entertainment (see instructions) 24b 16 Interest: 25 Utilities . . . . . . . . . . . 25 1,877 a Mortgage (paid to banks, etc.) . . . . . . 16a 26 Wages (less employment credits). . 26 31,280 b Other . . . . . . . . . . . . . . . . 16b 27 a Other expenses (from line 48) 27a 0 17 Legal and professional services 17 1,500 b Reserved for future use . . . . . . . . 27b 28 Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . . . . . . . . . . . 28 74,151 29 Tentative profit (loss). Subtract line 28 from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 132,297 30 Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method (see instructions). Simplified method filers only: enter the total square footage of: (a) your home: and (b) the part of your home used for business: Use the Simplified Method Worksheet in the instructions to figure the amount to enter on line 30 . . . . . . . . 30 31 Net profit or (loss). Subtract line 30 from line 29. • If a profit, enter on both Form 1040, line 12 (or Form 1040NR, line 13) and on Schedule SE, line 2. (If you checked the box on line 1, see instructions). Estates and trusts, enter on Form 1041, line 3. 31 132,297
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