Prepare a 2015 Form 1120 - U.S. Corporation Income Tax Return - for Freddy Falcon Inc. based on the information provided:
Prepare the return as if you were preparing it for an actual client. All necessary forms and schedules should be attached to the return, and properly and neatly completed. Form 1120 (Pages 1 - 5), Schedule D, Form 4562, Form 4797, and Form 8903 are among the forms that are required. The details of all required information (e.g., other deductions) must be provided in attached schedules.
This project is due on or before the beginning of class on Monday, November 28, 2016. No late returns will be accepted. There are no exceptions.
Information:
On January 1, 2013, Freddy Falcon formed Freddy Falcon, Inc. to manufacture and sell birds' nests and related supplies. Pertinent information regarding Freddy Falcon is summarized as follows:
1) Freddy Falcon Inc's business address is 2100 W University Ave, Wichita, KS 67213.
2) Its employer identification number is 41-2955236.
3) Freddy Falcon Inc. was incorporated on January 1, 2013.
4) Freddy owns 100 percent of the outstanding common stock; no other class of stock is authorized. Freddy is the president of the company and received a salary of $50,000 in 2015, which is not considered in the calculation of COGS. His Social Security number is 123-45-6789.
5) Freddy Falcon Inc. placed the following assets in service on the date indicated:
A. Land and Building: Purchased land and a building (Nonresidential Real Property) for $200,000 on January 1, 2013. The land and building were placed in service on January 1, 2013. $160,000 of the purchase price was allocated to the building, and $40,000 to the land. Freddy Falcon depreciates the building on a straight- line basis over 40 years for financial accounting purposes (salvage value = $0)
B. Equipment 1: Purchased equipment (7-year MACRS property - Half Year Convention) on January 1, 2014 for $20,000. The equipment was placed in service on January 1, 2014. Freddy Falcon depreciates the equipment on a straight-line basis over 10 years for financial accounting purposes (salvage value = $0). Freddy Falcon uses regular MACRS depreciation for tax purposes. He did not make a section 179 election and elected out of bonus depreciation. Freddy Falcon sold this equipment for $22,000 on December 31, 2015.
C. Equipment 2: Purchased equipment (7-year MACRS property - Half Year Convention) for $10,000 on January 1, 2015. The equipment was placed in service on January 1, 2015. Freddy Falcon depreciates the equipment on a straight-line basis over 10 years for financial accounting purposes (salvage value = $0). He did not make a section 179 election and elected out of bonus depreciation.
6) Freddy Falcon uses the accrual method of accounting and reports on a calendar year basis.
7) Freddy Falcon qualifies for the domestic production activities deduction (DPAD). Assume that all business related income and expense items are part of qualified production activities income = $43,500.
8) Freddy Falcon uses the Cost Method for valuing Closing Inventory and uses the FIFO inventory method.
9) On October 1, 2015, Freddy Falcon Inc. declared and paid a $5,000 cash dividend to its shareholder, Freddy Falcon.
10) Net income per books (before federal income tax) is $59,500. Freddy Falcon made estimated tax payments of $8,000 ($2,000 per quarter) to the IRS for the calendar year. This amount is sufficient to avoid any potential penalty for underpayment of estimated tax. Freddy Falcon wants any overpayment of federal taxes (if there is any) to be credited to 2016 estimated tax.
Freddy Falcon Inc's Book Income Statement for its year ended December 31, 2015:
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Sales
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200,000
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Returns
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(25,000)
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Net Sales
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175,000
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Less: Cost of Goods Sold
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(45,000)
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Gross Profit
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130,000
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Expenses:
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Depreciation
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7,000
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Repairs and Maintenance
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5,000
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General Insurance
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4,500
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Employee Compensation
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50,000
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Utilities
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6,000
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Advertising
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1,500
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Legal and Accounting Fees
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500
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Charitable Contributions
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5,500
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Interest Expense
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6,500
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Total Expenses
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86,500
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Gain on Sale of Equipment
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6,000
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Dividend Income (10% owned Corp.)
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10,000
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Net Income before Income Taxes
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59,500
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Federal Income Tax Expense
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7,000
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Net Income
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52,500
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Freddy Falcon Inc's Book Balance Sheet:
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as of 12/31/2014
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as of 12/31/2015
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Cash
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45,000
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50,000
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Accounts Receivable
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35,000
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25,000
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Inventory
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20,000
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35,000
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Buildings and Equipment
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180,000
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170,000
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Less: Accum. Depreciation
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(10,000)
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170,000
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(13,000)
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157,000
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Land
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40,000
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40,000
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Total Assets
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310,000
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307,000
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Accounts Payable
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35,000
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37,500
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Notes Payable (30 yr Note)
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100,000
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97,000
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Common Stock
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100,000
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50,000
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Retained Earnings
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75,000
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122,500
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Total Liabilities and Shareholders' Equity
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310,000
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307,000
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Freddy Falcon, Inc. FEIN: 41-2955236
Form 1120 - Tax Year 2015
Attachment for Form 4562, Line 17:
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Description of Property:
Acquisition Date:
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Building
1/1/2013
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Basis for Depreciation:
Recovery Period:
Convention:
Method:
Depreciation Rate:
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$ 160,000
39 yrs
MM
S/L
2.564
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Depreciation Deduction:
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$ 4,102
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Description of Property:
Acquisition Date:
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Equipment 1
1/1/2014
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Basis for Depreciation:
Recovery Period:
Convention:
Method:
Depreciation Rate:
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$ 20,000
7 yrs
HY
200 DB
24.49
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Depreciation Deduction:
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$ 4,898
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Total Depreciation
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$ 9,000
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to Form 4562,
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Line 17
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