2019 Income Statement Revenues

Gross sales: $14,023,000

Less: Customer returns (141,600)

Dividends: $185,000

Interest (from Bank Accounts): $297

Interest on U.S. Treasury Bonds: $1,394

Interest on Bolt Corp. Bonds $937

State of Georgia Bond Interest: $193

City of Atlanta, GA Bond Interest $307 Cost of Goods Sold

Inventory as of 1/1/19 of $3,093,452

Inventory purchased during 2019: $9,423,679

Inventory as of 12/31/19 of $2,930,490

[Note: All inventory figures are valued based on original cost and using the specific identification method because their computer systems can track the cost of each individual item sold. IRC Sect. 263A (UNICAP) does not apply to the corporation; there were no changes in the method of valuing inventories; and there were no writedowns of subnormal goods in 2019.] Expenses (Other than Cost of Goods Sold)

Warehouse rent: $160,248

Accounting Services: $24,125

Office Supplies: $34,392

Repairs and maintenance: $7,581

Depreciation: $16,000

Mortgage Interest Expense: $1,250

Lobbying $11,200*1

Entertainment: $ 20,400

Meals: $7,926

(meals: by employees, while out of town on business trips)

Travel: $30,130

(travel: by employees, while out of town on business trips includes airfare and hotels)

Charitable Contributions (cash) $57,433

Wages - Officers: $2,170,397

Wages (other employees): $739,292 *2 & *3

*1 Amounts paid to an outside lobbyist who went to various members of Congress to ask for support of legislation to relax the Federal rules on toy safety. No legislation was even written in 2019 by any member of Congress. *2 Three of the employees were certified by a designated local agency as being a member of a targeted WOTC group. Employee #1, Anna Howe, worked 2,300 hours for the year and was paid $23,000 in wages. She is in within the regular WOTC group. Employee #2, Mei Zheng, worked 243 hours for the year and was paid $3,920 in wages. She is also in within the regular WOTC group. Employee #3, Val Kilmer, worked 2,000 hours for the year and was paid $36,000 in wages. He is certified to be in the longterm family assistance recipients WOTC category . Anna and Mei were hired and started work on January 1, 2019. Val was hired and started work the prior year on January 1, 2018. *3 One of its employees, Anna Zheng (Social Security number 599463210), was paid $3,500 in specially designated paid family leave for four weeks so she could take care of her sick mother who had a very serious health condition. Annas normal salary is $1,000 per week and she has worked for the company since 2000. She earned $40,500 of wages in the prior tax year (2018). Royal Crowns family and medical leave program meets all of the requirements of IRC Sect. 45S and the guidance set forth in IRS Notice 201871. None of the $3,500 was paid out of Annas sick Federal Payroll Taxes: $103,970

Fines and Penalties $9,700 Other Income/Expense

Gain on sale of Government Debt Investments*4 $5,052

Loss on sale of corp. debt investments*5 ($300)

Gain on the Sale of Business Assets*6 $33,000

Gain on the exchange of real property*7 $200,000

////////\\\\\\\\ NET INCOME $??????

(The client was too busy to calculate this figure and they have asked you to complete this for them as a separate engagement from the preparation of the tax returns.) Footnotes *1 Amounts paid to an outside lobbyist who went to various members of Congress to ask for support of legislation to relax the Federal rules on toy safety. No legislation was even written in 2019 by any member of Congress. *2 Three of the employees were certified by a designated local agency as being a member of a targeted WOTC group. Employee #1, Anna Howe, worked 2,300 hours for the year and was paid $23,000 in wages. She is in within the regular WOTC group. Employee #2, Mei Zheng, worked 243 hours for the year and was paid $3,920 in wages. She is also in within the regular WOTC group. Employee #3, Val Kilmer, worked 2,000 hours for the year and was paid $36,000 in wages. He is certified to be in the longterm family assistance recipients WOTC category . Anna and Mei were hired and started work on January 1, 2019. Val was hired and started work the prior year on January 1, 2018. *3 One of its employees, Anna Zheng (Social Security number 599463210), was paid $3,500 in specially designated paid family leave for four weeks so she could take care of her sick mother who had a very serious health condition. Annas normal salary is $1,000 per week and she has worked for the company since 2000. She earned $40,500 of wages in the prior tax year (2018). Royal Crowns family and medical leave program meets all of the requirements of IRC Sect. 45S and the guidance set forth in IRS Notice 201871. None of the $3,500 was paid out of Annas sick time or vacation time. It was specifically paid through the terms of the companys written family and medical leave plan. The $3,500 paid under the plan is already included in the total amount of wages paid to nonofficers of the corporation for the year. Royal Crowns written Family and Medical leave program/policy complies with the noninterference language requirement under pertinent laws. *4 Sold some of its State of Georgia bonds on 8/1/19 for $9,252 to an unrelated party. The bonds that were sold were purchased on 12/06/14 for $4,200. Royal Crown received an IRS Form 1099B showing the sale of these bonds, but the tax basis of these bonds was not provided to the IRS on the 1099B. *5 Sold some of its Bolt Corp. bonds on 10/1/19 for $700 (its fair market value) to Patricia Sheridan. The bonds that were sold were purchased on 12/26/12 for $1,000. Royal Crown did not receive an IRS Form 1099B showing the sale of these bonds. *6 The $33,000 gain on the sale of business assets in 2019 refers to the sale of the forklift to an unrelated party on 4/3/19 for $36,000. Royal Crown paid a $3,000 commission expense to a broker related to the sale of the forklift. See additional details on the forklift in footnote #9 below. *7 See additional details in footnote #8 below.

*8 While Royal Crown rents the warehouse in which it operates, it owned a vacant piece of property 3 miles away for many years. The property was used to store some of its excess packaging in case they did not have room in their warehouse. The property was originally purchased for $400,000 on 9/13/2012. The address for this property was 16 Bracket Way Atlanta, GA 30302. On March 25, 2019 this property was exchanged with another, unrelated taxpayer, for another vacant lot that will also be used as a place to store excess packaging. The fair market value of the 16 Bracket Way property at the time of the exchange was $625,000. The replacement property is located at 5888 Hydrox Way Atlanta, GA 30309. The fair market value of the Hydrox Way property at the time of the exchange was $575,000. There were no expenses related to the exchange and the other party assumed the mortgage on the Bracket Way property (a $25,000 liability at the time of the exchange).

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