Instructor key — Module 2: Tax Return Forensics: Reconciling Form 1120-S & Schedule C to Internal Financials
Instructor/solutions version. Keep separate from the student assignment during assessment.
Calculation solution
Book income is $210,000, book DA $60,000, tax DA $95,000 and nondeductible expense $7,000. Calculate the selected simplified tax endpoint.
Calculated result: 182,000.00000000 (actual USD, except where the question requests a ratio or return). Reverse book allocation, deduct tax allocation, add the nondeductible cost. Use appropriate display rounding while retaining formula precision. This result is generated from the independent assignment inputs, not copied from the chapter answer.
Conceptual and judgment marking
A complete conceptual response identifies the measure's economic purpose, the defined perimeter and the risk of confusing it with another metric. Award up to 20 points for explanation, not terminology alone. For the applied question, award up to 15 for linking evidence to a concrete acquisition consequence; do not require an optimistic recommendation.
Spreadsheet marking
Award 15 of the 30 spreadsheet points for live links from assumptions, 10 for a coherent 10% mutation and predicted direction, and 5 for units, readable formatting and checks. Inspect formulas directly rather than accepting cached numbers. Use the instructor workbook for the controlling capstone model; this independent lab uses different inputs.
Calculation marking: 10 points for the correct equation/perimeter, 15 for intermediate arithmetic, and 10 for result, units and rounding. Overall pass requires 80 and all critical checks in the student version.
Original chapter practice solutions
The following solutions were moved out of the chapter so full answers no longer sit immediately below student questions. Match them in order to the chapter's practice problems.
Worked solution: Add the nondeductible $12,000, reverse $80,000 book depreciation, and subtract $140,000 tax depreciation. The result is $232,000. The $60,000 depreciation difference is not a current cash receipt; it represents different cost recovery. A full valuation would model the associated cash tax timing and investment rather than add $60,000 to operating cash automatically.
Worked solution: A produces $400,000 + $200,000 − $160,000 = $440,000. B produces $600,000 − $160,000 = $440,000. Their apparent $200,000 difference arose entirely from owner compensation presentation. Do not add a nonexistent proprietor salary to B. Comparable metrics require comparable labor assumptions.
Worked solution: The $70,000 claim is rejected because a capitalized purchase did not reduce starting book EBITDA. Add only the $9,000 verified operating expense, producing $509,000. Tax depreciation belongs in a book-to-tax reconciliation and cash-tax forecast, not as a second EBITDA benefit. The truck's inclusion in the acquisition perimeter must also be established.
Worked solution: Expected collections are $1,200,000 − $80,000 − $10,000 = $1,110,000. Bank deposits excluding the loan are also $1,110,000, so the stated bridge reconciles. A declining advance balance reduces current collections relative to earned revenue because earlier-period collections now support current sales. The agreement does not independently prove revenue recognition or collectibility.
Worked solution: Recurring occupancy cost rises to $120,000, requiring a $48,000 EBITDA reduction. The existing tax deduction can accurately reflect the historical lease; normalization addresses future operating economics rather than automatically alleging misreporting. Obtain the lease terms and determine whether the property costs replace any expense already present elsewhere, preventing a duplicated deduction.