Assignment
For this assignment, you will complete two tax returns (Corporation Return and Partnership Return), for 175 points each.
Please note there is a limit of 5 returns per session.
PART I - Tax Return #1, Corporate Return (Complete Form 1120 which includes Schedules C, J, K, L, M-1, and M-2) and Form 4626
Background
Jane Collier, James Taye, and Steve Allwine each own one-third of the common stock of Tasty Treats and Beverages. The corporation was incorporated on April 3, 2004. It has only one class of stock outstanding and operates as a C corporation for tax purposes. Tasty Treats and Beverages caters kid-friendly social events.
• Located at 1215 Blue Horizon, Dallas, TX 12234.
• Employer Identification Number is 12-34567890.
• Business activity is catering food. Its business activity code is 722300.
• The shareholders also work as officers for the corporation as follows:
o Jane is the chief executive officer and president (Social Security number 242-62-5786).
o James is the executive vice president and chief operating officer (Social Security number 563-58-8923).
o Steve is the vice president of finance (Social Security number 575-58-1572).
• All officers devote 100% of their time to the business
• All officers are U.S. citizens.
• Use the accrual method of accounting and have a calendar year-end.
• Four equal estimated tax payments of $28,000 each quarter. Its tax liability last year was $85,000.
• If it has overpaid its federal tax liability, the corporation would like to receive a refund.
• Dividend paid of $20,000 to its shareholders on October 1. The Corporation had ample earnings and profits (E&P) to absorb the distribution.
Financial Statements
|
Tasty Treats and Beverages, Inc.
|
|
Income Statement
|
|
For year ended December 31, 2013
|
|
Revenue from sales
|
1,500,000
|
|
Sales returns and allowances
|
(25,000)
|
|
Cost of goods sold
|
(325,000)
|
|
Gross profit from operations
|
1,150,000
|
|
Other Income:
|
|
|
Capital loss
|
(7,500)
|
|
Dividend income
|
15,000
|
|
Interest income
|
12,000
|
|
Gross income
|
1,169,500
|
|
Expenses:
|
|
|
Compensation
|
(750,000)
|
|
Depreciation
|
(12,000)
|
|
Bad debt expense
|
(7,800)
|
|
Meals and entertainment
|
(3,000)
|
|
Maintenance
|
(2,500)
|
|
Property taxes
|
(10,000)
|
|
State income taxes
|
(30,000)
|
|
Other taxes
|
(11,000)
|
|
Rent
|
(28,000)
|
|
Interest
|
(7,300)
|
|
Advertising
|
(6,200)
|
|
Professional services
|
(5,000)
|
|
Employee benefits
|
(8,000)
|
|
Supplies
|
(2,500)
|
|
Other expenses
|
(1,750)
|
|
Total expenses
|
(885,050)
|
|
Income before taxes
|
284,450
|
|
Federal income tax expense
|
96,713
|
|
Net income after taxes
|
187,737
|
|
Tasty Treats and Beverages, Inc.
|
|
Balance Sheet
|
|
December 31, 2013
|
|
ASSETS
|
January 2013
|
December 2013
|
|
Cash
|
175,000
|
190,000
|
|
Accounts Receivable
|
63,000
|
54,000
|
|
Allowance for doubtful accounts
|
(8,000)
|
(7,000)
|
|
Inventory
|
225,000
|
275,000
|
|
US government bonds
|
30,000
|
25,000
|
|
State and local bonds
|
50,000
|
50,000
|
|
Investments in stock
|
325,000
|
335,000
|
|
Fixed assets
|
475,000
|
485,000
|
|
Accumulated depreciation
|
(198,000)
|
(215,000)
|
|
Other assets
|
11,000
|
12,000
|
|
Total assets
|
1,148,000
|
1,204,000
|
|
Liabilities and Stockholder's Equity
|
|
|
|
Accounts payable
|
225,000
|
200,000
|
|
Other current liabilities
|
135,000
|
55,000
|
|
Other liabilities
|
75,000
|
68,263
|
|
Capital stock
|
250,000
|
250,000
|
|
Retained earnings
|
463,000
|
630,737
|
|
Total liabilities and stockholder's equity
|
1,148,000
|
1,204,000
|
Additional Information
• Inventory-related purchases during 2013 were $175,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of §263A do not apply.
• Of the $12,000 interest income, $1,500 was from a City of Dees bond that was used to fund public activities (issued in 2011), $1,750 was from an Border city bond used to fund private activities (issued in 2004), $2,500 was from a U.S. Treasury bond, and the remaining $6,250 was from a money market account.
• Dividend income came from ABC Inc. Owned 10,000 shares of the stock in ABC Inc. at the beginning of the year. This represented 10 percent of outstanding stock.
• On September 1, 2013, the corporation sold 1,000 shares of its ABC stock for $15,000. It had originally purchased these shares on June 13, 2006, for $7,500. After the sale, the Corporation owned 9 percent of ABC.
• compensation is as follows:
o Jane $175,000
o James $150,000
o Steve $150,000
o Other $275,000
• The Corporation wrote off $10,000 in accounts receivable as uncollectible during the year.
• Regular tax depreciation was $28,000. None of the depreciation should be claimed on Form 1125A.
• The $7,300 interest expense was from a business loan.
• Other expenses include $3,000 for premiums paid on term life insurance policies for which Tasty Treats and Beverages, Inc. is the beneficiary. The policies cover the lives of Jane, James, and Steve.