Question

Forward, Inc., is an exempt organization that assists disabled individuals by training them in digital TV repair. Used digital TVs are donated to Forward, Inc., by both organizations and individuals. Some of the donated digital TVs are operational, but others are not. After being used in the training program, the digital TVs, all of which are now operational, are sold to the general public. Forward's revenues and expenses for the current period are reported as follows.

Contributions $700,000 Revenues from digital TV sales 3,600,000 Administrative expenses 500,000 Materials and supplies for digital TV repairs 800,000 Utilities 25,000 Wages paid to disabled individuals in the training program (at minimum-wage rate) 1,200,000 Rent for building and equipment 250,000

Any revenues not expended during the current period are deposited in a reserve fund to finance future activities.

If an amount is zero, enter "0".

Calculate the net income of Forward, Inc., and the UBIT liability, if any.

The total net income is $_______, and the UBIT is $ _______

Answer 1

Net Income and UBIT liability
Revenue from Digital TV sales	$3,600,000
Less: Material and supplies for digital TV repairs	$800,000
Wages paid to disabled individuals	$1,200,000
Gross Profit	$1,600,000
Less: Administrative expenses	$418,605
Utilities	$20,930
Rent	$209,302
Net Profit	$951,163
UBIT liability @ 21%	$199,744
Working note:
Allocation of overheads in the proportion of revenue
	Tax exempt	Taxable	Total
Contribution received	$700,000		$700,000
Sales revenue		$3,600,000	$3,600,000
Total	$700,000	$3,600,000	$4,300,000
Allocation of overheads			$0
Administrative expenses	$81,395	$418,605	$500,000
Utilities	$4,070	$20,930	$25,000
Rent	$40,698	$209,302	$250,000
Total expenses	$126,163	$648,837	$775,000