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 selfprotection 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 (ii) (b),(c), & (d) Not applicable (e) & (f) No Compensation of Officers: Officer Social Security # % Time Devoted to Business % of Stock Owned Amount of Compensation Diana Banner 123-45-6789 100 50 $ 300,000 Peter Bruce 987-65-4321 100 25 150,000 Wayne Prince 123-98-4567 100 25 150,000 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. 2 Additional information for Schedule K: 1b Accrual 8 Do not check box 2a 451140 9 Fill in the correct amount b Retail Sales 10 3 c Self-Protection Gear 11 Do not check box 3 No 12 Not applicable 4a No 13-14 No b Yes, omit Schedule G 15a No 5a No b Do not check box b No 16-19 No 6-7 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 halfyears 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 3 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: Sales $8,500,000 Returns (300,000) Net sales $8,200,000 Beginning inventory $2,125,000 Purchases 5,000,000 Ending Inventory (2,978,000) Cost of goods sold $4,147,000 Gross profit $4,053,000 Expenses: Depreciation $120,000 Repairs 25,000 Insurance 36,000 Net premium-Officers' life insurance 43,000 Officers' compensation 600,000 Other salaries 375,000 Utilities 59,000 Advertising 47,000 Legal and accounting fees 63,000 Charitable contributions 20,000 Payroll taxes 42,000 Interest Expense 83,000 Bad debt expense 72,000 Total expenses ($1,585,000) Gain on Sale of equipment 90,000 Interest on municipal bonds 22,000 Net gain on stock sales 97,000 Dividend income 40,000 Net income before income taxes $2,717,000 Federal income tax expense ($600,000) State income tax expense ($70,000) Net income $2,047,000 4 The balance sheet is follows: January 1, 2019 December 31, 2019 Account Debit Credit Debit Credit Cash $ 4,500,000 $ $ 4,416,536 Accounts Receivable 350,000 425,000 Allowance for doubtful accounts 17,500 4,500 Inventory 2,125,000 2,978,000 Investment in corporate stock 250,000 60,000 Investment in municpal bonds 70,000 70,000 Cash surrender value of insurance policy 75,000 75,000 Land 400,000 1,700,000 Buildings 1,000,000 1,000,000 Accumulated Depreciation - Buildings 70,000 90,000 Equipment 700,000 900,000 Accumulated Depreciation - Equipment 245,000 205,000 Trucks 100,000 100,000 Accumulated Depreciation - Trucks 50,000 70,000 Accounts payable 250,000 270,000 Notes payable (short-term) 700,000 800,000 Accrued payroll taxes 3,000 4,000 Accrued state income taxes 2,000 7,000 Accrued federal income taxes 98,000 150,000 Bonds payable (long-term) 1,500,000 1,500,000 Net deferred tax liability 84,500 227,036 Capital stock - common 4,850,000 4,850,000 Retained earnings -unappropriated 1,700,000 3,547,000 Total $ 9,570,000 $ 9,570,000 $ 11,724,536 $ 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 earnings. 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.