Question

I completed everything except for the last part. I know my answers are right because i double checked but i just dont know how to answer the last section.

Problem 3-1
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	$75,067.00			$72,154.00
Accounting Services	48,860.00			50,256.00
Other Consulting Services	10,115.00			7,690.00
TOTAL REVENUES	134,042.00			130,100.00
COST OF SERVICES
Salaries	30,100.00			29,400.00
Payroll Taxes	2,387.00			2,275.00
Supplies	1,548.00			1,225.00
TOTAL COST OF SERVICES	34,035.00			32,900.00
GROSS PROFIT (LOSS)	100,007.00			97,200.00
OPERATING EXPENSES
Advertising and Promotion	350.00			–
Business Licenses and Permits	250.00			250.00
Charitable Contributions	275.00			250.00
Continuing Education	300.00			–
Dues and Subscriptions	3,500.00			3,500.00
Insurance	875.00			870.00
Meals and Entertainment	5,500.00			5,400.00
Office Expense	150.00			–
Postage and Delivery	50.00			–
Printing and Reproduction	100.00			–
Office Rent	14,000.00			13,800.00
Travel	865.00			750.00
Utilities	2,978.00			2,724.00
TOTAL OPERATING EXPENSES	29,193.00			27,544.00
NET INCOME (LOSS)	$70,814.00			$69,656.00

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 3,901 miles for business, 3,250 miles for commuting, and 4,500 miles for nonbusiness purposes. His wife has a car for personal use.

Complete Schedule C for Scott showing Scott's net income from self-employment. Assume Scott has evidence to support his deductions. If required, only use the minus sign to indicate a net loss. When required, round amounts to the nearest dollar.

SCHEDULE C (Form 1040) Department of the Treasury Internal Revenue Service (99)	Profit or Loss From Business (Sole Proprietorship) ? Go to www.irs.gov/ScheduleC for instructions and the latest information. ? Attach to Form 1040, 1040NR, or 1041; partnerships generally must file Form 1065.	OMB No. 1545-0074
		2017 Attachment Sequence No. 09

Name of proprietor Scott Butterfield

Social security number (SSN) 644-47-7833

A

Principal business or profession, including product or service (see instructions)
Accounting Services

B

Enter code from instructions
? 541211

C

Business name. If no separate business name, leave blank.

D

Employer ID number (EIN),
(see instr.)

E

Business address (including suite or room no.)
? 678 Third Street

City, town or post office, state, and ZIP code
Riverside, CA 92860

F

Accounting method:     (1)  ? Cash     (2)   ? Accrual     (3)   ? Other (specify) ?

G	Did you "materially participate" in the operation of this business during 2017? If "No," see instructions for limit on losses		? Yes  ?No
H	If you started or acquired this business during 2017, check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		?
I	Did you make any payments in 2017 that would require you to file Form(s) 1099? (see instructions) . . . . . . .		? Yes ? No
J	If "Yes," did you or will you file required Forms 1099? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		?Yes   ? No

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	134042
2	Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
3	Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3	134042
4	Cost of goods sold (from line 42) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
5	Gross profit. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5 134042
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	134042

Part II

Expenses. Enter expenses for business use of your home only on line 30.

8	Advertising . . . . . . . . . . . .	8	350		18	Office expense (see instructions) . . . .	18	200
9	Car and truck expenses (see				19	Pension and profit-sharing plans . . . .	19
	instructions). . . . . . . . . . .	9	2087		20	Rent or lease (see instructions): . . . . .
10	Commissions and fees . . . .	10			a	Vehicles, machinery, and equipment . . .	20a
11	Contract labor (see instructions)	11			b	Other business property . . . . . . . . .	20b	1400
12	Depletion . . . . . . . . . . . .	12			21	Repairs and maintenance . . . . . . . . .	21
13	Depreciation and section 179				22	Supplies (not included in Part III) . . .	22	1548
	expense deduction (not included in Part III)				23	Taxes and licenses . . . . . . . . . . . .	23	2637
	(see instructions)	13			24	Travel, meals, and entertainment:
14	Employee benefit programs				a	Travel. . . . . . . . . . . . . . . . . . . . .	24a	865
	(other than on line 19) . . . .	14			b	Deductible meals and
15	Insurance (other than health)	15	875			entertainment (see instructions) . . . .	24b	2750
16	Interest:				25	Utilities . . . . . . . . . . . . . . . . . . . . .	25	2978
a	Mortgage (paid to banks, etc.)	16a			26	Wages (less employment credits) . . . .	26	3900
b	Other . . . . . . . . . . . . . .	16b			27a	Other expenses (from line 48) . . . . . .	27a	400
17	Legal and professional services	17			b	Reserved for future use . . . . . . . .	27b

28	Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . . . . . . . . . . ?		28	58790
29	Tentative profit or (loss). Subtract line 28 from line 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		29	75252
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. • If a loss, you must go to line 32.	}	31	75252

32	If you have a loss, check the box that describes your investment in this activity (see instructions). • If you checked 32a, enter the loss 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 the line 31 instructions). Estates and trusts, enter on Form 1041, line 3. • If you checked 32b, you must attach Form 6198. Your loss may be limited.	}	32a ? All investment is at risk.
			32b ? Some investment     is not at risk.

For Paperwork Reduction Act Notice, see the separate instructions.	Cat. No. 11334P	Schedule C (Form 1040) 2017

Schedule C (Form 1040) 2017

Part III

Cost of Goods Sold (see instructions)

33	Method(s) used to
	value closing inventory:          a    ? Cost     b    ? Lower of cost or market     c    ? Other (attach explanation)
34	Was there any change in determining quantities, costs, or valuations between opening and closing inventory?
	If "Yes," attach explanation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?   Yes          ?  No

35	Inventory at beginning of year. If different from last year's closing inventory, attach explanation . . .	35
36	Purchases less cost of items withdrawn for personal use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
37	Cost of labor. Do not include any amounts paid to yourself . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
38	Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
39	Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
40	Add lines 35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
41	Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
42	Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4. . . . . . . .	42

Part IV

Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file Form 4562.

43

When did you place your vehicle in service for business purposes? (month, day, year)     ?  1/1/14

44

Of the total number of miles you drove your vehicle during 2017, enter the number of miles you used your vehicle for:

a  Business 3901 b Commuting (see instructions) 3250 c Other 4500

45

Was your vehicle available for personal use during off-duty hours? . . . . . . . . . . . . . . . . . . .

Yes

46

Do you (or your spouse) have another vehicle available for personal use? . . . . . . . . . . . . .

Yes

47a

Do you have evidence to support your deduction? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Yes

b

If "Yes," is the evidence written? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Yes

Part V

Other Expenses.  List below business expenses not included on lines 8–26 or line 30.

Continuing Education		300
Printing		100

48

Total other expenses. Enter here and on line 27a . . . . . . . . . . . . . . . . . . . . . . . . . . . .

48

400

Schedule C (Form 1040) 2017

I NEED HELP WITH THE FOLLOWING

Complete the reconciliation of book expenses to tax expenses.

Book expenses	$
Total disallowed expenses for tax
Additional expense deducted for tax
Total Tax expenses	$

Answer 1

Answer:

i) Book Expenses = TOTAL OPERATING EXPENSES + TOTAL COST OF SERVICES = $29,193 + $34,035 = $63,228

ii) Total Tax expenses = $58,790

iii) Disallowed expenses for tax:

1. The expenses for dues and subscriptions (country club membership dues for the year) = $3,500

2. Charitable contributions made to a political action committee =$275

3. 50% of Meals and Entertainment expenses = 50% * $5,500 = $2,750

As such total disallowed expenses for tax = $3,500 + $275 + $2,750 = $6,525

iv) Additional expense deducted for tax:

Car expenses for 3,901 miles (for business) * 53.5 cents for every business mile = $2,087

Hence

Reconciliation of book expenses to tax expenses.

Book expenses	$63,228
Less, Total disallowed expenses for tax	- $6,525
Add, Additional expense deducted for tax	$2,087
Total Tax expenses	$58,790