Bottle-Up, Inc., ,was organized on January 8, 2008, and made its S election on January

24, 2008. The necessary consents to the election ,vere filed in a timely manner. Its ad- dress is 1234 Hill Street, City, ST 33333. Bottle-Up uses the calendar year as its tax year, the accrual method of accounting, and the first-in, first-out (FIFO) inventory method. Bottle-Up manufactures ornamental glass bottles. It made no changes to its inventory costing methods this year. It uses the specific identification method for bad debts for book and tax purposes. Herman Hiebert and Melvin Jones o,vn 500 shares each. Both individu- als materially participate in Bottle-Up's single activity. Herman Hiebert is the tax matters person. Financial statements for Bottle-Up for the current year are sho,vn in Tables C:11-2 through C:11-4. Ignore the U.S. (domestic) production activities deduction. Prepare a 2017 S corporation tax return for Bottle-Up, sho,ving yourself as the paid preparer.

Refer to the facts in Tax Form/Return Preparation Problem C:9-58. Now assume the com- pany is an S corporation rather than a partnership. Additional facts are as follows:

Des. Bailey and Firth formed the corporation on January 1, 2016, and the corporation immediately elected S corporation status effective at the beginning of 2016.

Upon formation of the corporation, Dr. Bailey received common stock ,vorth $960,000, and Dr. Firth received common stock worth $2.24 million.

The balance sheet information is the same as in Table C:9-3 except the equity section is as follo,vs:

January 1, 2017

Common stock $3,200,000 Retained earnings 137,088

Dece,nber 31, 2017

$3,200,000 266,876

The $120,000 paid to Dr. Bailey is salary constituting W-2 wages (instead of a guaran- teed payment). Ignore employment taxes (Social Security, etc.) on Dr. Bailey's salary.

Ignore the U.S. (domestic) production activities deduction.

Use book numbers for Schedule Land Schedule M-1 in Form 11205.

Total MACRS depreciation is $74,311. Assume that $38,000 of depreciation has been allocated to cost of sales for both book and tax purposes so that the book and tax inventory and cost of sales amounts are the same. The AMT depreciat ion adjust ment on personal property is $9,000.

b The cost of goods sold amount reflects the Uniform Capitalization Rules of Sec. 263A. The appropriate restatements have been made in prior years.

'Officer salaries of$ t 20,000 are included in the total. All are employer's W-2 wages.

O Investment interest expense is $500. All other interest expense is trade- or business-related. None of the interest ex-

pense relates to the production of tax-exempt income.

The corporation made all contributions in cash to qualifying charities.

' Includes $3,000ofpremiumspaid forpolicieson livesofcorporateofficers.Bottle-Upisthebeneficiaryforbothpolicies.

9 The corporation acquired the capital assets on March 3, 2015 for $ 100,000 and sold them on September 15, 2017. for $148,666.

h Thecorporationacquired theSec. 1231propertyonJune5, 2016 for$10,000andsolditonDecember21,2017, for$8,900.

TheJanuary 1accumulated adjustments account balanceis$274,300.

$133,362 (70,000)

$330.000 63,362 $393,362

Required: Prepare the 2017 S corporation tax return (Form 11205), including the fol- lo,ving additional schedules and forms: Schedule D, Form 4562, and Schedule K-1.

Optional: (1) Complete Schedule M-2 in Form 11205 even though the company has never been a C corporation. For this purpose, the accumulated adjustments account at the beginning of 2017 is $137,088. (2) Prepare a schedule for each shareholder's basis in his or her S corporation stock. For this purpose, Bailey's stock basis at the beginning of 2017 is $1,001,126 and Firth's is $2,028,762.

Please show calculation of tax liability for Partnership, S-Corporation and PHC , and completed tax forms for 1120S, Schedule D, shcdeule K-1 and Form 4562. Thank you in advance

V TABLE C:11-2 Bottle-Up, Inc. Income Statement for the Year Ended December 31 of the Current Year (Problem C:11-61) $2,500,000 (15,000 $2,485,000 $ 102,000 900,000 200,000 80,000 100,000 188,000 $1,570,000 (96,000) 1,474,000 $1,011,000 Sales Returns and allowances Net sales Beginning inventory Purchases Labor Supplies Utilities Other manufacturing costs Goods available for sale Ending inventory Gross profit Salariesc Utilities expense Depreciation (MACRS depreciation is $36,311) Automobile and truck expense Office supplies expense Advertising expense Bad debts expense Rent expense Interest expensed Meals and entertainment expense Selling expenses Repairs and maintenance expense Accounting and legal expense Charitable contributions $ 451,020 54,000 11,782 26,000 9,602 105,000 620 30,000 1,500 21,000 100,000 38,000 4,500 9,000 24,500 11,000 36,980 2,500 1,000 (938,004) $ 72,996 Insurance expense! Hourly employees' fringe benefits Payroll taxes Other taxes Penalties (fines for overweight trucks) Operating profit Other income and losses: Long-term gain on sale of capital assets Sec. 1231 loss Interest on U.S. Treasury bills Interest on State of Florida bonds Dividends from domestic corporations Investment expenses Net income $ 48,6669 (1.100) 1,200 600 11,600 (600) 60,366 $ 133,362 TABLE C:11-3 Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year (Problem C:11-61) January 1 December 31 $ 15,000 41,500 102,000 103,000 15,000 10,000 374,600 (160,484) 160,000 $660,616 $116,948 45,180 96,000 74,000 16,000 10,000 375,000 (173,100) 190,000 $750,028 Assets: Cash Accounts receivable Inventories Stocks Treasury bills State of Florida bonds Building and equipment Minus: Accumulated depreciation Land Total Liabilities and equities: Accounts payable Accrued salaries payable Payroll taxes payable Sales taxes payable Due to Mr. Hiebert Mortgage and notes payable (current maturities) Long-term debt Capital stock Retained earnings Total $36,000 12,000 3,416 5,200 10,000 44,000 210,000 10,000 330,000 $660,616 $ 10,000 6,000 7,106 6,560 5,000 52,000 260,000 10,000 393,362 $750,028 TABLE C:11-3 Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year (Problem C:11-61) January 1 December 31 $ 15,000 41,500 102,000 103,000 15,000 10,000 374,600 (160,484) 160,000 $660,616 $116,948 45,180 96,000 74,000 16,000 10,000 375,000 (173,100) 190,000 $750,028 Assets: Cash Accounts receivable Inventories Stocks Treasury bills State of Florida bonds Building and equipment Minus: Accumulated depreciation Land Total Liabilities and equities: Accounts payable Accrued salaries payable Payroll taxes payable Sales taxes payable Due to Mr. Hiebert Mortgage and notes payable (current maturities) Long-term debt Capital stock Retained earnings Total $36,000 12,000 3,416 5,200 10,000 44,000 210,000 10,000 330,000 $660,616 $ 10,000 6,000 7,106 6,560 5,000 52,000 260,000 10,000 393,362 $750,028 TABLE C:11-4 Bottle-Up, Inc. Statement of Change in Retained Earnings, for the Current Year Ended December 31 (Problem C:11-61) Balance, January 1 Plus: Net income Minus: Dividends $133,362 (70,000) $330,000 63,362 Balance, December 31 $393,362 *The January 1 accumulated adjustments account balance is $274,300. V TABLE C:11-2 Bottle-Up, Inc. Income Statement for the Year Ended December 31 of the Current Year (Problem C:11-61) $2,500,000 (15,000 $2,485,000 $ 102,000 900,000 200,000 80,000 100,000 188,000 $1,570,000 (96,000) 1,474,000 $1,011,000 Sales Returns and allowances Net sales Beginning inventory Purchases Labor Supplies Utilities Other manufacturing costs Goods available for sale Ending inventory Gross profit Salariesc Utilities expense Depreciation (MACRS depreciation is $36,311) Automobile and truck expense Office supplies expense Advertising expense Bad debts expense Rent expense Interest expensed Meals and entertainment expense Selling expenses Repairs and maintenance expense Accounting and legal expense Charitable contributions $ 451,020 54,000 11,782 26,000 9,602 105,000 620 30,000 1,500 21,000 100,000 38,000 4,500 9,000 24,500 11,000 36,980 2,500 1,000 (938,004) $ 72,996 Insurance expense! Hourly employees' fringe benefits Payroll taxes Other taxes Penalties (fines for overweight trucks) Operating profit Other income and losses: Long-term gain on sale of capital assets Sec. 1231 loss Interest on U.S. Treasury bills Interest on State of Florida bonds Dividends from domestic corporations Investment expenses Net income $ 48,6669 (1.100) 1,200 600 11,600 (600) 60,366 $ 133,362 TABLE C:11-3 Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year (Problem C:11-61) January 1 December 31 $ 15,000 41,500 102,000 103,000 15,000 10,000 374,600 (160,484) 160,000 $660,616 $116,948 45,180 96,000 74,000 16,000 10,000 375,000 (173,100) 190,000 $750,028 Assets: Cash Accounts receivable Inventories Stocks Treasury bills State of Florida bonds Building and equipment Minus: Accumulated depreciation Land Total Liabilities and equities: Accounts payable Accrued salaries payable Payroll taxes payable Sales taxes payable Due to Mr. Hiebert Mortgage and notes payable (current maturities) Long-term debt Capital stock Retained earnings Total $36,000 12,000 3,416 5,200 10,000 44,000 210,000 10,000 330,000 $660,616 $ 10,000 6,000 7,106 6,560 5,000 52,000 260,000 10,000 393,362 $750,028 TABLE C:11-3 Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year (Problem C:11-61) January 1 December 31 $ 15,000 41,500 102,000 103,000 15,000 10,000 374,600 (160,484) 160,000 $660,616 $116,948 45,180 96,000 74,000 16,000 10,000 375,000 (173,100) 190,000 $750,028 Assets: Cash Accounts receivable Inventories Stocks Treasury bills State of Florida bonds Building and equipment Minus: Accumulated depreciation Land Total Liabilities and equities: Accounts payable Accrued salaries payable Payroll taxes payable Sales taxes payable Due to Mr. Hiebert Mortgage and notes payable (current maturities) Long-term debt Capital stock Retained earnings Total $36,000 12,000 3,416 5,200 10,000 44,000 210,000 10,000 330,000 $660,616 $ 10,000 6,000 7,106 6,560 5,000 52,000 260,000 10,000 393,362 $750,028 TABLE C:11-4 Bottle-Up, Inc. Statement of Change in Retained Earnings, for the Current Year Ended December 31 (Problem C:11-61) Balance, January 1 Plus: Net income Minus: Dividends $133,362 (70,000) $330,000 63,362 Balance, December 31 $393,362 *The January 1 accumulated adjustments account balance is $274,300