Tax Return #1, Corporate Return
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:
- Jane is the chief executive officer and president (Social Security number 242-62-5786).
- James is the executive vice president and chief operating officer (Social Security number 563-58-8923).
- 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.
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:
- Jane $175,000
- James $150,000
- Steve $150,000
- 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.
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Tasty Treats and Beverages, Inc.
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Income Statement
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For year ended December 31, 2013
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Revenue from sales
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1,500,000
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Sales returns and allowances
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(25,000)
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Cost of goods sold
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(325,000)
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Gross profit from operations
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1,150,000
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Other Income:
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Capital loss
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(7,500)
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Dividend income
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15,000
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Interest income
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12,000
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Gross income
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1,169,500
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Expenses:
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Compensation
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(750,000)
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Depreciation
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(12,000)
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Bad debt expense
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(7,800)
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Meals and entertainment
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(3,000)
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Maintenance
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(2,500)
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Property taxes
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(10,000)
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State income taxes
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(30,000)
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Other taxes
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(11,000)
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Rent
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(28,000)
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Interest
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(7,300)
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Advertising
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(6,200)
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Professional services
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(5,000)
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Employee benefits
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(8,000)
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Supplies
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(2,500)
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Other expenses
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(1,750)
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Total expenses
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(885,050)
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Income before taxes
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284,450
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Federal income tax expense
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96,713
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Net income after taxes
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187,737
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Tasty Treats and Beverages, Inc.
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Balance Sheet
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December 31, 2013
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ASSETS
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January 2013
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December 2013
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Cash
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175,000
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190,000
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Accounts Receivable
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63,000
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54,000
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Allowance for doubtful accounts
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(8,000)
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(7,000)
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Inventory
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225,000
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275,000
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US government bonds
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30,000
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25,000
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State and local bonds
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50,000
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50,000
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Investments in stock
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325,000
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335,000
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Fixed assets
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475,000
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485,000
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Accumulated depreciation
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(198,000)
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(215,000)
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Other assets
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11,000
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12,000
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Total assets
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1,148,000
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1,204,000
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Liabilities and Stockholder's Equity
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Accounts payable
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225,000
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200,000
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Other current liabilities
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135,000
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55,000
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Other liabilities
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75,000
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68,263
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Capital stock
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250,000
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250,000
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Retained earnings
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463,000
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630,737
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Total liabilities and stockholder's equity
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1,148,000
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1,204,000
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Tax Return #2, Partnership Return (Form 1065, only Page 1 and Schedule K required)
Background
The Rowdy Fun is a limited partnership and was formed on June 1, 2005, by Thomas Kyle, its general partner, and two other limited partners when they each contributed an equal amount of cash to start the new enterprise. Rowdy Fun is an outdoor equipment retailer focused on selling outdoor activities gear. Thomas has a 33.33% profits and capital interest and the limited partners hold the remaining 66.66% of the profits and capital interests. Their profits and capital interests have remained unchanged since the partnership was formed. Thomas is actively involved in managing the business while the limited partners are simply investors.
- Rowdy Fun is located at 8955 Golden Drive, Sunnydale, AZ 34592.
- The employer identification number for Rowdy Fun is 47-8593563.
- Rowdy Fun uses the accrual method of accounting and has a calendar year end.
- Thomas' address is 853 Crystal Drive, Sunnydale, AZ 34592.
Additional Information
- Rowdy Fun has total assets of $1,900,000 and total liabilities of $550,000 at the beginning of the year and total assets of $2,300,00 and total liabilities of $725,000 at the end of the year.
- Partnership liabilities consist of accounts payable, and Thomas, as general partner, is legally responsible for paying these liabilities if the partnership does not.
- Five years ago, Rowdy Fun purchased an original outdoor statue with the intent for display in the store. In 2013, the statue was sold. The $15,000 recognized gain from the sale is reflected in the income statement.
- For tax purposes, Rowdy Fun has consistently elected under Section 179 to expense any furniture or fixtures purchased every year since it was formed. There is no tax basis in any of its depreciable assets. This year, Rowdy Fun expensed $23,000 of signs and display cases for tax purposes.
- On November 20th, Rowdy Fun distributed $90,000 ($30,000 per partner) to the partners.
- Miscellaneous expenses include a $1200 fine for violating a local ordinance.
- Rowdy Fun maintains its books using generally accepted accounting principles.
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Rowdy Fun
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Income Statement
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For year ended December 31, 2013
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Sales
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975,000
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Sales returns and allowances
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(25,000)
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Cost of goods sold
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(300,000)
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Gross profit from operations
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650,000
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Other Income:
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Interest from Money Market
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3,500
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Gain for sale of statue
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15,000
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Gross income
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668,500
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Expenses:
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Employee wages
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(125,000)
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Interest on accounts payable
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(2,000)
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Payroll and property taxes
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(45,000)
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Supplies
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(26,000)
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Rent on retail building
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(20,000)
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Depreciation on furniture and fixtures
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(15,400)
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Advertising
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(4,000)
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Guaranteed payments to Thomas Kyle
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(40,000)
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Utilities
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(16,000)
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Accounting and legal services
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(5,000)
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Meals and entertainment
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(500)
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Charitable Contributions
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(375)
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Miscellaneous expense
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(425)
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Total expenses
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(299,700)
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