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SCHEDULE B-PROFIT FROM SALE OF REAL ESTATE, STOCKS, BONDS, ETC. (See Instruction 8)
& VALTE AN OF
1. KIND OF PROPERTY
L. Nn front (Later Itam
Les reserves for depreciation and depletion
Sinking und 12.
ex.operty Taxes.. 16. Other liabilities (describe tully):
Reserve for Income Taxes 17. Capital stock:
Preferred stock (lere stock in treasury)
Common stock (less stock in treasury) 18. Surplus. 19. Undivided profits. 20
(Reproduction of Page 3 of Return)
Capital Stock Tax. In addition to paying an income tax, corporations are subject to a special tax known as a "capital stock" tax. This tax should not be confused with the income tax. The capital stock tax is an excise tax payable in advance for the privilege of doing business from July I to June 30.
(1) Every domestic corporation shall pay annually a special excise tax with respect to carrying on or doing business, equivalent to $1 for each $1,000 of so much of the fair average value of its capital stock for the preceding year ending June 30 as is in excess of $5,000. In estimating the value of capital stock the surplus and undivided profits shall be included;
(2) Every foreign corporation shall pay annually a special excise tax with respect to carrying on or doing business in the United States, equivalent to $1 for each $1,000 of the average amount of capital employed in the transaction of its business in the United States during the preceding year ending June 30.
(b) The taxes imposed by this section shall not apply in any year to any corporation which was not engaged in business (or, in the case of a foreign corporation, not engaged in business in the United States) during the preceding year ending June 30, nor to any corporation enumerated in section 231, nor to any insurance company subject to the tax imposed by section 243 or 246.
(Section 700—1924 Act) For the purpose of this tax, the fair value of the entire capital stock as a going concern, regardless of stock ownership or the ability of individual stockholders to liquidate their holdings, is required. The tax is based upon the fair value of the capital stock and not upon
value. The sales prices for any number of shares of stock less than a majority interest are not necessarily indicative of the fair value of the entire capital stock. The book value, the kind of assets, the nature of the business, good will, franchises, earning capacity, etc., are important factors that affect the worth of enterprises and must be given due consideration in arriving at the fair value at any given date.
The capital stock tax return must be filed during July of each
year. If on account of sickness or absence of the officer charged with making the return, it is impossible to prepare and file a return on or before July 31, the Collector, upon application in writing, may allow an extension of not exceeding thirty days for making and filing the return. If extension is granted, the letter of the Collector must be attached to the return. Neither the Commissioner nor the Collector has authority to allow an extension greater than thirty days from July 31.
From the total fair average value of the capital stock the sum of $5,000.00 is deductible and the tax is at the rate of $1.00 for each full $1,000.00 of any balance.
The penalty for making a false or fraudulent capital stock tax return is 50% of the tax evaded and a fine of not exceeding $10,000.00 or one year's imprisonment or both. The penalty for failure to file a return on time is a fine of not more than $1,000.00 and an additional assessment of 25% of the total tax. The penalty for failing to pay the tax when due is 5% of the tax due plus interest at the rate of 1% per month during the period it remains unpaid.
INCOME TAX QUESTIONS AND PROBLEMS
2. (a) What amount of credit are corporations entitled to deduct in the computation of their income taxes?
(b) Explain the "relief” provision of the Law which applies in the computation of the tax on incomes in excess of $25,000.00 but not in excess of $25,250.00.
3. The United Products Company, a domestic corporation, files its Income Tax Return on the basis of a calendar year. The net income of the Company for the current year amounted to $21,250.00. What will be the amount of the Company's income tax? When should the Company file its return? When will the tax be payable?
4. If the net income of the United Products Company amounted to $27,150.00, what would be the amount of its income tax? If the net income amounted to $25,050.00, what would be the amount of the income tax?
5. The Hoosier Shoe Company is organized under the Laws of the State of Indiana and located at Indianapolis. It closes its business year on June 30. During the current fiscal year the Company has a gross income of $57,400.00 and operat. ing expenses of $14,200.00. Included in the income is a cash dividend on stock owned in another corporation amounting to $10,000.00 and proceeds from a life insurance policy on the former president of the Company who died during the year amounting to $10,000.00.
If you were asked to prepare the Company's Income Tax Return, when would you file it with the Collector? Prepare a statement showing the amount of tax to be paid. When should the tax be paid?
6. The Queen City Auto. Supply Co. is the manufacturer of a patented spark plug and is also dealer in automobile supplies. From the following information and Trial Balance, you are asked to prepare:
(a) A Statement of Income Tax for the calendar year ending December 31;
(b) A Balance Sheet as of December 31 to accompany the Income Tax Return;
(c) A Statement showing computation of capital stock tax, assuming that the net worth exhibited by the Balance Sheet represents the fair value of the Company's entire capital stock for the fiscal year ending June 30. (Omit cents in calculating the tax.)
Inventories (beginning of year):
Inventories (end of year):
27,300.00 Automobile Supplies..
19,200.00 Finished Goods..
50,400.00 Loose Tools.
10,500.00 Goods in Process..
17,205.00 Reserve for Bad Debts to be adjusted to 5% of open accounts.
Depreciation to be computed on "diminishing value" of assets at the following rates: Factory Buildings
5% Delivery Equipment..
10% Furniture and Fixtures.
(Note. To compute the depreciation for the current year on the "diminishing value" of the assets, deduct the amount of the reserve for depreciation from the cost of the asset and multiply the result by the rate of depreciation. To illustrate:
The cost of the factory buildings is $225,000.00. The reserve for depreciation of buildings is $20,500.00. The rate of depreciation is 2%, hence:
Therefore, $4,090.00 is the amount of the addition to the reserve for depreciation of buildings for the current year.)
Write off one-seventh Patent Rights each year.
First Mortgage 5% Gold Bonds are a first charge on all the assets of the company.
Interest payable quarterly on the first of February, May, August and November.
(Note. If the interest had been paid in full according to agreement, the accrued interest on December 31 would amount to $2,083.33. However, according to the Trial Balance, the interest paid during the year amounts to only $9,375.00. Since the interest on the bonds at 5% for one year would amount to $12,500.00, it is apparent that the accrued interest on December 31 amounts to $3,125.00. This amount should be set up as an accrued liability on the Balance Sheet.)