ACCT 441 - Advanced Tax C Corporation Tax Return Banner, Inc. (a C corporation) is located at 90 Fifth Avenue, New York City, NY. The corporation uses the calendar year and accrual basis for both book and tax purposes. It is engaged in the sale of self- protection gear. Its employer identification number (EIN) is 12-1234568. The company was incorporated on January 1, 1941 and began business on April 1, 1941. Banner, Inc. made the following estimated tax payments for 2019: April 15, 2019 $157,500 June 15, 2019 142,500 September 15, 2019 150.000 December 15, 2019 150.000 Total $600.000 Taxable income in 2018 was $3.0 million and the 2018 tax was $630,000. The corporation earned its 2019 taxable income evenly throughout the year. Therefore, it does not use the annualization or seasonal methods. Inventory and Cost of Goods Sold: The corporation uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should be reflected on the appropriate form. No other costs or expenses are allocated to cost of goods sold. The corporation is exempt from the uniform capitalization (UNICAP) rules because average gross income for the previous three years was less than $10 million. The following information should also be included on the applicable form: Line 9 (a) Check (11) (b).(c) & (d) Not applicable No Compensation of Officers: Officer Social Security Diana Banner Peter Bruce Wayne Prince 123-45-6789 987-65-4321 123-98-4567 % Time Devoted to Business 100 100 100 % of Stock Owned 50 25 25 Amount of Compensation $ 300,000 150,000 150,000 Bad Debts: For tax purposes, the corporation uses the direct write-off method of deducting bad debts. For book purposes, the corporation uses an allowance for doubtful accounts. During 2019, the corporation charged $85,000 to the allowance account, such amount representing actual write-offs for 2019. 1 Do not check box Fill in the correct amount Additional information for Schedule K: 1b Accrual 8 2a 451140 9 b Retail Sales 10 Self-Protection Gear 11 3 No 12 No 13-14 b Yes, omit Schedule G 15a 5a No b b No 16-19 6-7 No Do not check box Not applicable No No Do not check box No Capital Gains and Losses: The corporation sold 100 shares of Shield Corp.common stock on October 7, 2019 for $230,000. The corporation acquired the stock on December 15, 2018 for $120,000. The corporation also sold 75 shares of Metro Corp common stock on June 17, 2019 for $57,000. The corporation acquired this stock on September 18, 2014 for $70,000. The corporation has a $20,000 capital loss carryover from 2018. These transactions were not reported to the corporation on Form 1099-B. Fixed Assets and Depreciation: Book: The corporation uses straight-line deprecation over the useful lives of the assets as follows: store building, 50 years, equipment ten years, and trucks, five years. The corporation takes a half- year's depreciation in the year of acquisition and the year of disposition and assumes no salvage value. The book financial statements reflect these calculations. Tax All assets are MACRS property as follows: store building, 39-year non-residential real property equipment, seven-year property, and trucks, five-year property. The corporation acquired the store building for $1 million and placed it in services on January 2, 2015. The corporation acquired two pieces of equipment for $300,000 (Equipment 1) and $400.000 (Equipment 2) and placed them in service on January 2, 2015. The corporation acquired the trucks for $100,000 and placed them in service on July 18, 2016. The trucks are not listed property and are no subject to the limitation on luxury automobiles. The corporation did not make the expensing election under Sec. 179 or take bonus depreciation on any property acquired before 2018. Accumulated depreciation through December 31, 2018 on the properties is as follows: Building 101,530 Equipment 1 206,280 Equipment 2 275,040 Trucks 71,200 On February 2, 2019 the corporation sold Equipment 1 for $200,000. The corporation had no Sec. 1231 losses from prior years. In a separate transaction on February 7, 2019 the corporation acquired and placed in service a piece of equipment costing $ 500,000. Assume these transactions do not 2 qualify as like-kind exchange. The new equipment is seven-year property. The corporation made the Sec. 179 expensing election for the entire cost of the property. Use published IRS depreciation tables to compute the 2019 depreciation. The GAAP income statement for 2019 is as follows: $8,500,000 (300.000) $8,200,000 $2,125.000 5,000,000 (2.978.000) $4,147,000 $4,053,000 Sales Returns Net sales Beginning inventory Purchases Ending Inventory Cost of goods sold Gross profit Expenses Depreciation Repairs Insurance Net premium-Officers' life insurance Officers' compensation Other salaries Utilities Advertising Legal and accounting fees Charitable contributions Payroll taxes Interest Expense Bad debt expense Total expenses Gain on Sale of equipment Interest on municipal bonds Net gain on stock sales Dividend income Net Income before income taxes Federal income tax expense State income tax expense Net Income $120.000 25.000 36.000 43,000 600,000 375,000 59,000 47.000 63.000 20.000 42.000 83.000 72.000 ($1.585,000) 90,000 22.000 97.000 40.000 $2.717.000 (S600,000) ($70,000) $2,047.000 The balance sheet is follows: January 1, 2019 Debit Credit December 31, 2019 Debit Credit Account $ 4,500,000 $ 350.000 $ 4,416,536 425.000 17,500 4,500 2.125,000 250.000 70.000 75.000 2,978,000 60.000 70.000 75.000 1.700.000 1,000,000 400.000 1.000.000 70,000 90,000 700.000 900.000 Cash Accounts Receivable Allowance for doubtful accounts Inventory Investment in corporate stock Investment in municpal bonds Cash surrender value of insurance policy Land Buildings Accumulated Depreciation - Buildings Equipment Accumulated Depreciation Equipment Trucks Accumulated Depreciation. Trucks Accounts payable Notes payable (short-term) Accrued payroll taxes Accrued state income taxes Accrued federal income taxes Bonds payable (long-term) Net deferred tax liability Capital stock - common Retained earnings -unappropriated Total 245,000 205,000 100.000 100.000 50,000 250,000 700,000 3,000 2,000 98,000 1,500,000 84,500 4,850,000 1,700,000 $ 9,570,000 70,000 270,000 800,000 4,000 7,000 150,000 1,500,000 227,036 4,850,000 3,547,000 $ 11,724,536 $ 9,570,000 $ 11.724,536 Other Information: The corporation received dividends from taxable, domestic corporations, the stock of which Banner owns less than 20%. The corporation paid $200,000 in cash dividends to its shareholders during the year and charged the payment directly to retained eamings. The state income tax provided is the exact amount of such taxes incurred during the year. Required: Prepare the 2019 corporate tax return for Banner, Inc. along with any necessary supporting schedules, forms, etc. Prepare both the Schedule M-3 and M-1 but you may omit Schedule B and Form 8916-A. ACCT 441 - Advanced Tax C Corporation Tax Return Banner, Inc. (a C corporation) is located at 90 Fifth Avenue, New York City, NY. The corporation uses the calendar year and accrual basis for both book and tax purposes. It is engaged in the sale of self- protection gear. Its employer identification number (EIN) is 12-1234568. The company was incorporated on January 1, 1941 and began business on April 1, 1941. Banner, Inc. made the following estimated tax payments for 2019: April 15, 2019 $157,500 June 15, 2019 142,500 September 15, 2019 150.000 December 15, 2019 150.000 Total $600.000 Taxable income in 2018 was $3.0 million and the 2018 tax was $630,000. The corporation earned its 2019 taxable income evenly throughout the year. Therefore, it does not use the annualization or seasonal methods. Inventory and Cost of Goods Sold: The corporation uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should be reflected on the appropriate form. No other costs or expenses are allocated to cost of goods sold. The corporation is exempt from the uniform capitalization (UNICAP) rules because average gross income for the previous three years was less than $10 million. The following information should also be included on the applicable form: Line 9 (a) Check (11) (b).(c) & (d) Not applicable No Compensation of Officers: Officer Social Security Diana Banner Peter Bruce Wayne Prince 123-45-6789 987-65-4321 123-98-4567 % Time Devoted to Business 100 100 100 % of Stock Owned 50 25 25 Amount of Compensation $ 300,000 150,000 150,000 Bad Debts: For tax purposes, the corporation uses the direct write-off method of deducting bad debts. For book purposes, the corporation uses an allowance for doubtful accounts. During 2019, the corporation charged $85,000 to the allowance account, such amount representing actual write-offs for 2019. 1 Do not check box Fill in the correct amount Additional information for Schedule K: 1b Accrual 8 2a 451140 9 b Retail Sales 10 Self-Protection Gear 11 3 No 12 No 13-14 b Yes, omit Schedule G 15a 5a No b b No 16-19 6-7 No Do not check box Not applicable No No Do not check box No Capital Gains and Losses: The corporation sold 100 shares of Shield Corp.common stock on October 7, 2019 for $230,000. The corporation acquired the stock on December 15, 2018 for $120,000. The corporation also sold 75 shares of Metro Corp common stock on June 17, 2019 for $57,000. The corporation acquired this stock on September 18, 2014 for $70,000. The corporation has a $20,000 capital loss carryover from 2018. These transactions were not reported to the corporation on Form 1099-B. Fixed Assets and Depreciation: Book: The corporation uses straight-line deprecation over the useful lives of the assets as follows: store building, 50 years, equipment ten years, and trucks, five years. The corporation takes a half- year's depreciation in the year of acquisition and the year of disposition and assumes no salvage value. The book financial statements reflect these calculations. Tax All assets are MACRS property as follows: store building, 39-year non-residential real property equipment, seven-year property, and trucks, five-year property. The corporation acquired the store building for $1 million and placed it in services on January 2, 2015. The corporation acquired two pieces of equipment for $300,000 (Equipment 1) and $400.000 (Equipment 2) and placed them in service on January 2, 2015. The corporation acquired the trucks for $100,000 and placed them in service on July 18, 2016. The trucks are not listed property and are no subject to the limitation on luxury automobiles. The corporation did not make the expensing election under Sec. 179 or take bonus depreciation on any property acquired before 2018. Accumulated depreciation through December 31, 2018 on the properties is as follows: Building 101,530 Equipment 1 206,280 Equipment 2 275,040 Trucks 71,200 On February 2, 2019 the corporation sold Equipment 1 for $200,000. The corporation had no Sec. 1231 losses from prior years. In a separate transaction on February 7, 2019 the corporation acquired and placed in service a piece of equipment costing $ 500,000. Assume these transactions do not 2 qualify as like-kind exchange. The new equipment is seven-year property. The corporation made the Sec. 179 expensing election for the entire cost of the property. Use published IRS depreciation tables to compute the 2019 depreciation. The GAAP income statement for 2019 is as follows: $8,500,000 (300.000) $8,200,000 $2,125.000 5,000,000 (2.978.000) $4,147,000 $4,053,000 Sales Returns Net sales Beginning inventory Purchases Ending Inventory Cost of goods sold Gross profit Expenses Depreciation Repairs Insurance Net premium-Officers' life insurance Officers' compensation Other salaries Utilities Advertising Legal and accounting fees Charitable contributions Payroll taxes Interest Expense Bad debt expense Total expenses Gain on Sale of equipment Interest on municipal bonds Net gain on stock sales Dividend income Net Income before income taxes Federal income tax expense State income tax expense Net Income $120.000 25.000 36.000 43,000 600,000 375,000 59,000 47.000 63.000 20.000 42.000 83.000 72.000 ($1.585,000) 90,000 22.000 97.000 40.000 $2.717.000 (S600,000) ($70,000) $2,047.000 The balance sheet is follows: January 1, 2019 Debit Credit December 31, 2019 Debit Credit Account $ 4,500,000 $ 350.000 $ 4,416,536 425.000 17,500 4,500 2.125,000 250.000 70.000 75.000 2,978,000 60.000 70.000 75.000 1.700.000 1,000,000 400.000 1.000.000 70,000 90,000 700.000 900.000 Cash Accounts Receivable Allowance for doubtful accounts Inventory Investment in corporate stock Investment in municpal bonds Cash surrender value of insurance policy Land Buildings Accumulated Depreciation - Buildings Equipment Accumulated Depreciation Equipment Trucks Accumulated Depreciation. Trucks Accounts payable Notes payable (short-term) Accrued payroll taxes Accrued state income taxes Accrued federal income taxes Bonds payable (long-term) Net deferred tax liability Capital stock - common Retained earnings -unappropriated Total 245,000 205,000 100.000 100.000 50,000 250,000 700,000 3,000 2,000 98,000 1,500,000 84,500 4,850,000 1,700,000 $ 9,570,000 70,000 270,000 800,000 4,000 7,000 150,000 1,500,000 227,036 4,850,000 3,547,000 $ 11,724,536 $ 9,570,000 $ 11.724,536 Other Information: The corporation received dividends from taxable, domestic corporations, the stock of which Banner owns less than 20%. The corporation paid $200,000 in cash dividends to its shareholders during the year and charged the payment directly to retained eamings. The state income tax provided is the exact amount of such taxes incurred during the year. Required: Prepare the 2019 corporate tax return for Banner, Inc. along with any necessary supporting schedules, forms, etc. Prepare both the Schedule M-3 and M-1 but you may omit Schedule B and Form 8916-A