Problem 3-1 Schedule C (LO 3.1, 3.3, 3.5, 3.7) Scott Butterfield is…

Problem 3-1
Schedule C (LO 3.1, 3.3, 3.5, 3.7)

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
12/31/2022
Current PeriodPrior Period
1/1/2022 to 12/31/20221/1/2021 to 12/31/2021
REVENUES
Tax Services$76,124$75,067
Accounting Services49,08148,860
Other Consulting Services10,09510,115
TOTAL REVENUES135,300134,042
COST OF SERVICES
Salaries35,00030,100
Payroll Taxes3,0982,387
Supplies1,3021,548
TOTAL COST OF SERVICES39,40034,035
GROSS PROFIT (LOSS)95,900100,007
OPERATING EXPENSES
Advertising and Promotion250350
Business Licenses and Permits300250
Charitable Contributions400275
Continuing Education500300
Dues and Subscriptions2,8003,500
Insurance900875
Meals and Entertainment4,4005,500
Office Expense200150
Postage and Delivery10050
Printing and Reproduction50100
Office Rent12,00014,000
Travel900865
Utilities3,0002,978
TOTAL OPERATING EXPENSES25,80029,193
NET INCOME (LOSS)$70,100$70,814

Scott also mentioned the following:

  • The expenses for dues and subscriptions were his country club membership dues for the year.
  • $400 of 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, 2019 and drove it 4,000 miles for business (equally over the course of the year), 3,250 miles for commuting, and 4,500 miles for nonbusiness purposes. No business expenses for the car are included above. Scott wishes to use the standard mileage method. His wife has a car for personal use.
  • Meals and Entertainment expense includes $2,500 related to golf greens fees for entertaining clients, $1,000 for business meals provided by restaurants, and $900 for the bagels and doughnuts once a month for all employees.

 

Complete Schedule C for Scott showing Scott’s net taxable profit 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

Profit or Loss From Business
(Sole Proprietorship)
▶ Go to www.irs.gov/ScheduleC for instructions and the latest information.
▶ Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.
OMB No. 1545-0074
2022

Attachment
Sequence No. 09

Name of proprietor
Scott Butterfield
Social security number (SSN)
644-47-7833
APrincipal business or profession, including product or service (see instructions)
Accounting Services
BEnter code from instructions
▶ 541211
CBusiness name. If no separate business name, leave blank.DEmployer ID number (EIN),
(see instr.)

EBusiness address (including suite or room no.)678 Third Street
City, town or post office, state, and ZIP codeRiverside, CA 92860
FAccounting method:     (1)  ☒ Cash     (2)  ◻ Accrual     (3)  ◻ Other (specify)  ▶
GDid you “materially participate” in the operation of this business during 2022? If “No,” see instructions for limit on losses☒ Yes    ◻ No
HIf you started or acquired this business during 2022, check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶
IDid you make any payments in 2022 that would require you to file Form(s) 1099? (see instructions) . . . . . . . . . . . . . . .◻ Yes    ☒ No
JIf “Yes,” did you or will you file required Forms 1099? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .◻ Yes    ◻ No
Part I   Income
1Gross 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 fill in the blank 1
2Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3fill in the blank 2
4Cost of goods sold (from line 42) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5Gross profit. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5fill in the blank 3
6Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) . . . . . . . . .6
7Gross income. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶7fill in the blank 4
Part II   Expenses. Enter expenses for business use of your home only on line 30.
8Advertising . . . . . . . . . . . . . . .8fill in the blank 518Office expense (see instructions) . . . . .18fill in the blank 6
9Car and truck expenses (see19Pension and profit-sharing plans . . . . . .19
instructions) . . . . . . . . . . . . . .9fill in the blank 720Rent or lease (see instructions):
10Commissions and fees . . . . . . .10aVehicles, machinery, and equipment . . .20a
11Contract labor (see instructions)11bOther business property . . . . . . . . . . .20bfill in the blank 8
12Depletion . . . . . . . . . . . . . . . .1221Repairs and maintenance . . . . . . . . . .21
13Depreciation and section 17922Supplies (not included in Part III) . . . .22fill in the blank 9
expense deduction (not included23Taxes and licenses . . . . . . . . . . . . . . .23fill in the blank 10
in Part III) (see instructions)1324Travel and meals:
14Employee benefit programsaTravel . . . . . . . . . . . . . . . . . . . . . . .24afill in the blank 11
(other than on line 19) . . . . . . .14bDeductible meals
15Insurance (other than health)15fill in the blank 12(see instructions) . . . . . . . . . . . . . . .24bfill in the blank 13
16Interest (see instructions):25Utilities . . . . . . . . . . . . . . . . . . . . . . .25fill in the blank 14
aMortgage (paid to banks, etc.)16a26Wages (less employment credits) . . . . .26fill in the blank 15
bOther . . . . . . . . . . . . . . . . . . .16b27aOther expenses (from line 48) . . . . . . .27afill in the blank 16
17Legal and professional services17bReserved for future use . . . . . . . . . .27b
28Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . . . . . . . . . . ▶28fill in the blank 17
29Tentative profit or (loss). Subtract line 28 from line 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29fill in the blank 18
30Expenses 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
31Net profit or (loss). Subtract line 30 from line 29.
• If a profit, enter on both Schedule 1 (Form 1040), line 3, 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.
}31fill in the blank 19
32If 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 Schedule 1 (Form 1040), line 3, 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. 11334PSchedule C (Form 1040) 2022

 

Schedule C (Form 1040) 2022Page 2
Part III     Cost of Goods Sold (see instructions)
33Method(s) used to
value closing inventory: a  ◻ Cost b  ◻ Lower of cost or market c  ◻ Other (attach explanation)
34Was there any change in determining quantities, costs, or valuations between opening and closing inventory?
If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .◻ Yes ◻ No
35Inventory at beginning of year. If different from last year’s closing inventory, attach explanation . . . . . . . . .35
36Purchases less cost of items withdrawn for personal use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
37Cost of labor. Do not include any amounts paid to yourself . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
38Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
39Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
40Add lines 35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
41Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
42Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 . . . . . . . . . . . . . . . .42
Part IVInformation on Your Vehicle. Fill in the blanks in 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.
43When did you place your vehicle in service for business purposes? (month/day/year)     ▶

1/3/19 1/1/19 1/3/20 

44Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for:
a Business   fill in the blank 21   b   Commuting (see instructions)   fill in the blank 22   c   Other   fill in the blank 23
45Was your vehicle available for personal use during off-duty hours? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .YesNo
46Do you (or your spouse) have another vehicle available for personal use? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .YesNo
47aDo you have evidence to support your deduction? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .YesNo
bIf “Yes,” is the evidence written? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .YesNo
Part VOther Expenses.  List below business expenses not included on lines 8-26 or line 30.
Not applicableContinuing educationContribution to Political Action CommitteeTax servicesfill in the blank 29
Not applicablePrintingNondeductible portion of meals and entertainmentCountry club duesfill in the blank 31

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