You are currently working at a mid-sized certified public accounting firm. Your client is Bob Jones. Bob has hired your firm for professional advice regarding
whether he should operate as a sole proprietor, a partnership, an S corporation, or a C corporation. Using the supplied Data Sheet for Final Project document,
prepare a memorandum to the client recommending a type of business entity, including an appendix of supporting IRS tax schedules and forms. Specifically, the
following critical elements must be addressed: I. Recommendation
A. Recommend a type of business entity for the client to consider based on your tax research. Consider justifying your recommendation using the code and
regulations that relate to the business entity.
B. Differentiate between accrual accounting and cash basis. Based on the type of business and the client’s accounting system, what is the impact when revenue
is recognized?
C. Based on the decision of accrual vs. cash basis, describe when revenue would be recognized on the sale of inventory, and how the accrual reporting differs
from cash basis.
D. Determine the economic impact on the client’s financial situation. Based on your decision, determine the potential tax liability, keeping in mind
appropriate Internal Revenue Code and Treasury regulations.
E. Identify the tax consequences on the sale or exchange of the land consistent with capital gain rules. Consider the selling expense, broker’s fees, closing
costs, appraisals, and surveys and the correct schedule form to complete.
F. Justify whether or not the client should choose a business entity that has limited liability protection. Be sure to include possible future liability
issues based on the potential economic impact and appropriate Internal Revenue Code and Treasury regulations.
G. Describe the tax effect on the recommended business entity and the impact it will have on the client’s personal tax return. Consider addressing how the
business entity affects the completion of the 1040 tax form. II.
Sample Solution