Question
Aloft Beyo a for-pronit corporation duly organized in 2014 under the laws of Puerto Rico. Its shareholders, Jos and Mara, both own 50% of the
Aloft Beyo a for-pronit corporation duly organized in 2014 under the laws of Puerto Rico. Its shareholders, Jos and Mara, both own 50% of the entity's common shares. The entity uses the accrual basis system. As of December 31, 2020, the audited financial statements of the corporation are presented below: 2019 2020 Cash $950,000 1,227,000 Accounts receivable 600,000 700,000 Contribution paid in advance 0 125,000 Inventory 5,120,000 5,500,000 Property and equipment, net 2,400,000 2,000,000 Investment in Sofi Industries, Corp. 500,000 500,000 Investment in XYZ Corporation 80,000 0 Investment in bonds 250,000 150,000 Total Assets 9,900,000 10,202,000 Liabilities Debts to pay 800,000 650,000 Loans payable 1,000,000 900,000 Income tax payable 0 100,000 Total Capital Liabilities 1,800,000 1,650,000 Capital Common stock 100,000 100,000 Surplus capital 3,000,000 3,000,000 Retained earnings Total Capital Total Liabilities and Capital 5,000,000 5,452,000 8,100,000 8,552,000 9,900,000 10,202,000 note Aloft Beyond, Corp. Statement of Income and Expenses For the year ended December 31, 2020 Description quantity Sales 13,500,000 Less: Cost of goods sold 4.500.000 Gross Margin 9,000,000 Other Income Dividends 15,000 Interest 12,000 Capital gain 40,000 Capital loss (60,000) Gross income 9,007,000 Expenses Salary 5,375,000 Rent 1,200,000 Depreciation 400,000 Boat Expense 140,000 Advertising 375,000 Payroll taxes 280,000 1 2 3b 5 6 7 8 4 Repair and maintenance Donations Professional Services Meals Entertainment Miscellaneous Total expenditures Net Income Before Tax Provision for Income Tax Net Income 225,000 250,000 130,000 40,000 25,000 15,000 8,455,000 552,000 100.000 $452,000 Notes 1. The corporation owns 12% of the common stock of Sofi Industries, Inc., a Puerto Rico domestic corporation. 2. The $ 12,000 corresponds to the following types of interest: $ 4,000 of California State bonds, $ 500 in bank account deposits, and $ 7,500 in bonds of the Premium Corporation, entity subject to the payment of income tax. 3. Capital assets: a. The corporation sold on August 15, 2020 an investment in common shares of XYZ Corporation for $ 120,000. The shares were purchased on March 18, 2015 by $ 80,000 b. The corporation sold on November 23, 2020 an investment in government bonds of New York $ 70,000. The bonds were purchased on July 1, 2015 for $ 100,000. 4. Salaries reported to the Department of the Treasury through withholding vouchers (W-2) It amounts to $ 5 million. Informed professional services amount to $ 130,000. 5. The monthly rent of the various facilities of the corporation totals $ 100,000. As of December 31, 2020, the corporation accumulated the income for the year on its books. However, the rent for the month of December was paid on March 30, 2021. 6. The depreciation expense claimed on the books matches the depreciation expense for taxes, according to the Internal Revenue Code. 7. The corporation owns a boat which they occasionally use to entertain their employees. and hold meetings with salespeople and company executives. 8. Donations were made to qualified non-profit entities. Additional Information 9. The corporation paid $ 125,000 of estimated income tax applicable to taxable year 2020. 10. The entity generated $ 1,900,000 of net operating loss in 2019. DETERMINE: a. Determine the net income (loss) before donations for the corporation as of December 31, 2020, using the table to reconcile the items presented in the statement of income and expenses, from a financial accounting basis to tax accounting. b. Determine and compute the special deductions to be claimed before the net taxable income or net operating loss. c. Determine the income tax payable or applicable refund from the corporation. Assume that the Alternative Minimum Tax is $0.
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