A simplified balance sheet for Planet Cafe Inc. contain the following amounts at the end of 2019 and 2020.
Planet Cafe Inc.
Balance Sheet
As at October 3120202019AssetsCurrent AssetsCash$13,000$8,200Accounts Receivable$11,500$11,100Prepaid Rent$3,500$1,700Food & Beverage Inventory$33,200$11,300Total Current Assets$61,200$32,300Long-Term AssetsEquipment$178,000$169,000Accumulated Depreciation$-28,000$-15,100Total Long-Term Assets$150,000$153,900Total Assets$211,200$186,200LiabilitiesCurrent Liabilities$17,700$17,700Long-Term Liabilities$25,000$43,000Total Liabilities$42,700$60,700Shareholders’ EquityCommon Shares$78,000$57,000Retained Earnings$90,500$68,500Total Shareholders’ Equity$168,500$125,500Total Liabilities and Equity$211,200$186,200
Assume current liabilities include only items from operations (e.g., accounts payable, taxes payable). Long-term liabilities include items from financing (e.g. bonds and other long-term liabilities). Note that the company did not sell any equipment and did not borrow any additional long-term liabilities throughout the year.
Prepare the cash flow statement for 2020 using the indirect method. Assume no dividends were declared or paid in 2020.
Do not enter dollar signs or commas in the input boxes.
Use the negative sign for a decrease in cash.
Planet Cafe Inc.
Cash Flow Statement
For the Year Ended October 31, 2020Cash Flow from OperationsNet IncomeAnswerAdjustments for Non-Cash ItemsDepreciation ExpenseAnswerChange in Current Assets and Current LiabilitiesIncrease in Accounts ReceivableAnswerIncrease in Prepaid RentAnswerIncrease in Food & Beverage InventoryAnswerNet Cash Provided (Used) by Operating ActivitiesAnswerCash Flow from Investing ActivitiesPurchase of EquipmentAnswerNet Cash Provided (Used) by Investing ActivitiesAnswerCash Flow from Financing ActivitiesIssuance of Common SharesAnswerRepayment of Long-Term LiabilitiesAnswerNet Cash Provided (Used) by Financing ActivitiesAnswerNet Increase (Decrease) in CashAnswerCash at the Beginning of the YearAnswerCash at the End of the YearAnswer

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You are demonstrating that you understand the main argument of the text and you are able to re-stage all or parts of it or illustrate its meanings. As with any act of translation, fidelity to the original meaning of the text across its conversion is of paramount importance [i.e. pay attention to what gets lost or added]. You may to ask yourself: Who am I translating for? How does my understanding of my audience determine the quality of the translation? You may, of course, use quotes from your chosen source article but be sure to contextualize and integrate those quotes so that a viewer can understand them. If you don’t wish to work in video, or if you are not comfortable with video post-production processes, you may create blog, a sound piece, a series of images accompanied with text. As a guideline: videos should be between 3-5 min in length; papers between 3-4 pages; other media will be measured in equivalency). Although this is a ‘creative’ assignment, we are approaching it as a piece of engaged scholarship, so make sure that it engages centrally and substantially with a concept from one of these readings. Be sure to cite the essay in some place (in the credit sequence or in the prose of your text) so that there is no ambiguity about which essay you are working it.

Suppose you are a CPA hired to represent a client who is currently under examination by the IRS. The client is the president and 95% shareholder of a building supply sales and warehousing business. He also owns 50% of the stock of a construction company. The client’s son owns the remaining 50% of the stock of the construction company. The client has received a notice of proposed adjustments (NPA) on three significant issues related to the building supply business for the years under examination. The issues identified in the NPA are unreasonable compensation, stock redemptions, and a rental loss. Additional facts regarding the issues are reflected below:

Unreasonable compensation: The taxpayer receives a salary of $10 million composed of a $5 million base salary plus 5% of gross receipts not to exceed $5 million. The total gross receipts of the building supply business are $300 million. The NPA by the IRS disallows the salary based on 5% of gross receipts as a constructive dividend.
Stock redemptions: During the audit period, the construction company redeemed 50% of the outstanding stock owned by the client and 50% of the stock owned by the client’s son, leaving each with the same ownership percentage of 50%. The IRS treated the redemption as a distribution under IRC Section 301.
Rental loss: The rental loss results from a building leased to the construction company owned by the client and his son.

Instructions
Use the Internet and Strayer Library to research the rules and income tax laws regarding unreasonable compensation, stock redemptions treated as dividends, and related party losses. Be sure to use the six-step tax research process in Chapter 1 that was demonstrated in Appendix A of your textbook as a guide for your written response.
Write a 3–4 page paper in which you:

Based on your research and the facts stated in the scenario, prepare a recommendation for the client in which you advise either acceptance of the proposed adjustments or further appeal of the issue based on the potential for prevailing on appeal.
Create a tax plan for the future redemption of the client’s stock owned in the construction company that will not be taxed according to Section 301 of the IRC.
Propose a strategy for the client to receive similar amounts in compensation in the future and avoid the taxation as a constructive dividend.

This course requires the use of Strayer Writing Standards. For assistance and information, please refer to the Strayer Writing Standards link in the left-hand menu of your course. Check with your professor for any additional instructions.
The specific course learning outcome associated with this assignment is:

Create a recommendation for proposed adjustments, stock redemption, and future compensation based on a given scenario.