Posted: September 17th, 2017
Goss Corporation is a leading manufacturer of hangers for the laundry and dry cleaning
industry. The family-owned business has prospered for many years and has generated
approximately $100 million of sales and $8 million in after-tax profits. Your accounting
firm has performed the audit and tax work for Goss and its executives since the company
was created many years ago. The advent of plastic hangers and improved fabrics has kept
the company’s market share constant, and the corporation plans no major plant expansions
or additions. Salaries paid to corporate executives, most of whom are family members, are
above the national averages for similar officers. Dividend payments in recent years have not
exceeded 10% of the after-tax profits. On December 1 of the current year, you were
assigned to oversee the preparation of the current year Goss tax return. In undertaking the
assignment, you review Goss tax returns for the past three years. You note from Schedule L
(the balance sheet) that, during this period, the corporation made about $1.5 million in
loans to three executives and regularly increased the size of its stock portfolio. This increase
leads you to believe that Goss may be liable for the accumulated earnings tax in the current
year and prior years.
account aware of the potential accumulated earnings tax liability?
the potential liability on the current year return?
accumulated earnings tax.
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