An example of an adjustment to income schedule may look as follows. This schedule is generally footnoted with
explanations:
2005 2004 2003
Income Before Taxes and Adjustments 290,021$ 810,970$ 1,136,286$
Adjustment
Officers Salaries 1 666,609 155,530 157,500
Non-recurring Cost of Sales 2 700,000 - -
Inventory Adjustments 3 (264,000) 83,000 (52,000)
Unreported Income 3 220,000 220,000 200,000
Travel and entertainment 4 10,000 10,000 10,000
Related Party Rents 5 - - 350,000
Fair Management Salaries 1 (167,092) (162,225) (157,500)
Fair Rent 5 (350,000) (350,000) (350,000)
Interest 8 77,415 90,717
Other Income 6 - (32,265) (9,872)
Officers' Life 7 27,000 15,000 -
Adjusted Pretax (debt free) Income 1,209,953 840,727 1,284,414
Depreciation 8 141,801 258,882 50,000
Adjusted EBIDTA 1,351,754 1,099,609 1,334,414
Ongoing purchases of Equipment (depreciation) (50,000) (50,000) (50,000)
Debt Free Income (adjusted) 1,301,754 1,049,609 1,284,414
Corporate level income taxes (520,702) (419,844) (513,766)
Adjusted net income 781,053$ 629,765$ 770,648$
Adjustment Explanations
1 - Officers salary needs to be adjusted for a replacement non-owner executive salary. We have estimated that an executive director
can be hired with benefits for approximately $150,000 for 2000. We have increased this by 5% for 2003-2005.
2 - Capitalizable Costs related to the building and other non-recurring costs are adjusted for.
3 - Inventories were adjusted for certain differences between actual counts and computer totals. It was also determined that $200,000
to $220,000 per year of additional income was not reported.
4 - It was determined that $10,000 of Travel and Entertainment were excessive in each year.
5 - The owner personally owns the real estate where the company operates. Therefore the rent needs to be adjusted to reflect market rates.
The facility is approximately 50,000 square feet and the fair rent is estimated to be $7 per square ft. For 2004 and 2005, the real estate
entity is included in the financial statements under accounting rules for FIN 46 and thus rent expense was eliminated.
6 - Other income is adjusted from income.
7 - Officers life insurance is added back to income.
8 - Interest and Depreciation are added back mostly related to the buildings. 50,000 per year of Capital Expenditures is subtracted as
reasonable per year.
XYZ COMPANY
Adjustments to Reported Income
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