$2,500,000 5,500,000 (3,500,000) $10,000,000 (250,000) $ 9,750,000 ▼ TABLE C:3-4 Melodic Musical Sales, Inc.--Book Income Statement 2022 Sales Returns Net sales Beginning inventory Purchases Ending inventory Cost of goods sold Gross profit Expenses: Depreciation Repairs General insurance Net premium-Officers' life insurance Officers' compensation Other salaries Utilities Advertising Legal and accounting fees Charitable contributions Interest expense Payroll taxes Bad debt expense Total expenses Gain on sale of equipment Interest on municipal bonds Net gain on stock sales Dividend income Net income before income taxes Federal income tax expense State income tax expense Net income $ 152,500 20,500 55,000 30,000 650,000 400,000 72,000 48,000 50,000 30,000 62,000 210,000 (4,500,000) $5,250,000 45,000 (1,825,000) 105,000 5,000 45,000 12,000 $ 3,592,000 (742,560) (75,000) $ 2,774,440 Estimated Tax Payments (Form 2220): The corporation deposited estimated tax payments as follows: $ 35,000 April 15, 2022 June 15, 2022 September 15, 2022 December 15, 2022 Total 190,000 165,000 165,000 $555,000 Taxable income in 2021 was $1.2 million, and the 2021 tax was $252,000. The corpora- tion earned its 2022 taxable income evenly throughout the year. Therefore, it does not use the annualization or seasonal methods. Assume the underpayment penalty rate remains at 7% for the second quarter of 2023 (regardless of any announced rate change). Inventory and Cost of Goods Sold (Form 1125-A): The corporation uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should be reflected on Form 1125-A. No other costs or expenses are allocated to cost of goods sold. Note: Assume the corporation is exempt from the uniform capitalization (UNICAP) rules. TABLE C:3-3 Melodic Musical Sales, Inc.-Book Balance Sheet Information January 1, 2022 Account Debit Credit December 31, 2022 Debit Credit Cash $ 516,774 $ 815,494 Accounts receivable 400,000 500,000 Allowance for doubtful accounts $ 20,000 $ 25,000 Inventory 2,500,000 3,500,000 Investment in corporate stock 260,000 50,000 Investment in municipal bonds 30,000 30,000 Cash surrender value of insurance policy 60,000 80,000 Land 200,000 200,000 Buildings 2,000,000 2,000,000 Accumulated depreciation-Buildings 100,000 140,000 Equipment 750,000 1,100,000 Accumulated depreciation-Equipment 187,500 205,000 Trucks 100,000 100,000 Accumulated depreciation-Trucks 30,000 50,000 Accounts payable 300,000 270,000 Notes payable (short-term) 800,000 640,000 Accrued payroll taxes 14,880 18,600 Accrued state income taxes 4,500 7,500 Accrued federal income taxes Bonds payable (long-term) Net deferred tax liability Capital stock-Common Retained earnings-Unappropriated Totals $6,816,774 $6,816,774 $8,375,494 $8,375,494 2,500 77,361 1,800,000 600,000 57,394 167,593 1,500,000 1,500,000 2,000,000 4,674,440 Scenario: Melodic Musical Sales, Inc. is located at 5500 Fourth Avenue, City, ST 98765. The corporation uses the calendar year and accrual basis for both book and tax purposes. It is engaged in the sale of music instruments with an employer identification number (EIN) of XX-2024022. The company incorporated on December 31, 2018, and began business on January 2, 2019. Table C:3-3 contains balance sheet information at January 1, 2022, and December 31, 2022. Table C:3-4 presents an unaudited GAAP income statement for 2022. These schedules are presented on a book basis. Other information follows the tables.