Company Background
Florida Chocolate Inc. was first opened as a sole proprietor in 20×2 under the name Alexandria’s Chocolates. The company produced 4 specialty chocolate products using an old family recipe, which only the owner, Alexandria Vierra, knows. The company started as a small home based business.
In 20×4 Alexandria decided to expand the business, opened a factory in Ft. Lauderdale Florida and converted the business to a corporation named Florida Chocolate Inc. Due to the huge success of the business she decided to expand to Europe in 20×6, opening another factory in England. This factory is run by Alexandria’s brother Nelson. The third factory was opened in Brazil in 20×9 and is run by Alexandria’s sister Laura.
Project Information:
Alexandria contracted you as her accountant and is seeking advice on switching from a sole proprietorship to a corporation in 20×3.
Portfolio Project Requirements:
This project is split into four (4) parts with one (1) part due each week of the course.
· Part 1 and Part 2 will provide opportunities to receive feedback.
· See Rubric: "Weekly Portfolio Project Rubric"
· Part 3 will encompass all Parts 1-3.
· See Rubric: "Portfolio Project Rubric"
· Part 4 will require a presentation of Part 1-3, including any additional requirements as indicated.
· See Rubric: "Presentation Rubric"
Based on your readings, use of technology, research of literature, and other sources complete the following:
Part 1:
This week's assignment will be a draft of Part 1 of the portfolio project. The final version of Part 1 of the project is due, along with Part 2, in their final versions, with Part 3 as the Portfolio Project for this class.
Please prepare a minimum 2 page memo on the below to your client.
· Describe the four different legal entities recognized by the US tax system and the fundamental differences in the characteristics across business entities.
· Include the pros and cons of transitioning from a sole proprietorship to a corporation.
· Based on the readings, choose several topics that you would like to explain to your client to pinpoint the advantages or disadvantages of switching from a sole proprietor to a corporation.
· Discuss the principles of ethical and professional conduct relating to corporate, business, and trust taxation supported by standards/practice.
Part 2:
This week's assignment will be a draft of Part 2 of the portfolio project. The final version of Part 2 of the project is due, along with Part 1, in their final versions with Part 3 as the Portfolio Project for this class.
Please use the provided excel template to calculate the below:
Alexandria has also requested that you compute the income tax provision for Florida Chocolate Inc. as of December 31, 20×3. The company’s income statement for 20×3 is provided below:
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Florida Chocolate Inc. |
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Statement of Operations |
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at December 31, 20×3 |
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Net sales |
$20,000,000 |
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Cost of sales |
12,000,000 |
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Gross profit |
8,000,000 |
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Compensation |
500,000 |
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Selling expenses |
750,000 |
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Depreciation and amortization |
1,250,000 |
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Other expenses |
1,000,000 |
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Total operating expenses |
3,500,000 |
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Income from operations |
$4,500,000 |
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Interest and other income |
25,000 |
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Income before income taxes |
$ 4,525,000 |
You have identified the following permanent differences:
Interest income from municipal bonds $10,000
Nondeductible stock compensation 5,000
Nondeductible fines 1,000
Florida Chocolate Inc. prepared the following schedule of temporary differences from the beginning of the year to the end of the year:
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Florida Chocolate Inc. |
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Temporary Difference Scheduling Template |
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BOY |
Current |
EOY |
EOY |
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Taxable |
Deferred |
Year |
Cumulative |
Deferred |
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Temporary Differences |
Taxes
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Change |
T/D |
Taxes
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Accumulated depreciation |
(1,050,000)
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(500,000) |
(5,500,000) |
(1,155,000)
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BOY |
Current |
EOY |
EOY |
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Deductible |
Deferred |
Year |
Cumulative |
Deferred |
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Temporary Differences |
Taxes
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Change |
T/D |
Taxes |
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Allowance for bad debts |
21,000 |
10,000 |
110,000 |
23,100 |
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Prepaid income |
0 |
20,000 |
20,000 |
4,200 |
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Deferred compensation |
10,500 |
10,000 |
60,000 |
12,600 |
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Accrued pension liabilities |
105,000 |
100,000 |
600,000 |
126,000 |
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Total |
136,500 |
140,000 |
790,000 |
165,900 |
a. Compute Florida Chocolate Inc.’s current income tax expense or benefit for 20×3.
b. Compute Florida Chocolate Inc.’s deferred income tax expense or benefit for 20×3.
c. Prepare a reconciliation of Florida Chocolate Inc.’s total income tax provision with its hypothetical income tax expense of 21 percent in both dollars and rates.
Part 3:
This week's assignment is to complete Part 3 of the portfolio project and to submit the final versions of Part 1 and Part 2 of the project for a completed Portfolio Project.
Please prepare a hypothetical tax calculation based on the different type of entities given the same amount of taxable income.
· What would the client tax liability look like if the entity was a C Corp, an S Corp, or a sole proprietorship?
· Prepare a hypothetical tax return, using software, as either a C or S Corp based on your determination of which would be better for this client.
Submit the final Portfolio Project (Parts 1 through 3 in their final versions) for grading.
Part 4:
Please prepare a PowerPoint presentation that presents the previous three weeks’ findings as if you were presenting them to the client.
Writing/Presentation Requirements:
· The body of this paper in total should be 7-8 pages (not including cover page, abstract or references) but not more than 9 pages.
· Embed all software charts/tables/diagrams into the paper
· A minimum of 3 scholarly references in total are required from the KU Library, academic journals, professional journals, and/or appropriate authoritative references such as FASB Codification System, COSO, COBIT, Audit Standards, etc.
· Be sure to provide specific examples throughout your paper to back up your statements
· All research papers are submitted in APA format for sources and citations.
· Please remember to run your documents through Plagiarism Check to review the percentage taken from other sources prior to uploading here for final grading and the final plagiarism check.
· Please use the Writing Center as needed
· View the grading rubric
Technology/Collaborative Activity:
· You will be using various software to create the exhibits to your paper
· You will be presenting your findings from the project to the class using the voice-over feature in PowerPoint. Please be sure the audio is clear and the file is in the Week 4 Presentation discussion board.
· You will be collaborating with other classmates on their presentations and answering any questions about your own presentation.
