Chris, Corp., is a for-profit corporation duly organized in 2014 under the laws of Puerto Rico. Its shareholders, Emanuel and Emilia, own 50% of the entity's common shares. The entity uses the accrual system (accrual basis).

Asset

2020 2021

cash 650,000 1,200,000

accounts receivable 500,000 600,000

tax paid in advance 0 155,000

inventory 5,500,000 6,500,000

property and equipment 3,400,000 3,000,000

net investment in sofi industries, corp 500,000 500,000

bond investment 450,000 350,000

total assets 11,000,000 12,305,000

Passives

Accounts payable 700,000 550,000

loans payable 1,100,000 800,000

income tax payable 0 200,000

total liability 1,800,000 1,550,000 capital

common actions 100,000 100,000

capital surplus 4,000,000 4,000,000

retained earnings 5,100,000 6,655,000

total capital 9,100,000 10,755,000

total liabilities and capital 11,000,000 12,305,000

Chris corporation, statement of income and expenses of the corporation for the year ended December 31, 2021

Sales 15,000,000

less: cost of goods sold 4,000,000 note 1

Gross margins 11,000,000

Other income

Dividends 25,000

2

Interest 22,000 note 3

Capital gain 50,000 note 4a

capital loss (70,000) note 4b

gross income 11,027,000

Bills

Salaries 6,500,000 note 5

Rent 1,680,000 note 6

Depreciation 500,000 note7

ship expenses 230,000 note 8

Advertising 115,500

social security 51,500

Unemployment 10,000

Patent 77,500

personal property tax 58,800

repairs and maintenance 250,000

Donations 250,000 note 9

professional services 120,000 note 5

Food 20,000

Electricity 15,000

water and sewage 5,000 total expenses 9,883,300

net income before taxes 1,143,700

income tax provision (200,000)

Net income 943,700

1. Beginning inventory $5,500,000 + purchases $5,000,000 ending inventory $6,500,000 = $4,000,000. 2. The corporation owns 15% of the common shares of Sofi Industries, Inc., a Puerto Rico domestic corporation. 3. The $22,000 correspond to the following types of interest: $6,000 of California State bonds, $1,500 in bank account deposits, and $14,500 in Premium Corporation bonds, an entity subject to the payment of income tax. (Special tax rates do not apply) 4. Capital assets: to. The corporation sold on August 15, 2021 an investment in XYZ Corporation common stock for $100,000. The shares were purchased on March 18, 2016 for $50,000. b. The corporation sold on November 23, 2021 a $50,000 New York State bond investment. The bonds were purchased on July 1,

2016 for $120,000. 5. Wages reported to the Department of the Treasury through withholding slips (W-2) amount to $6 million. Professional services reported in 480.6 SP amount to $120,000. 6. The monthly income of the various facilities of the corporation totals $140,000. As of December 31, 2021, the corporation accumulated income for the year on its books. However, the rent for the month of December was paid on March 31, 2022. 7. Current Depreciation: The depreciation expense claimed in the books coincides with the depreciation expense for taxes, according to the Internal Revenue Code. Property Class: Equipment; Acquisition date: 01/01/2020; Cost $3,500,000; Previously claimed depreciation $800,000; Shelf life: 7 years. 8. The corporation owns a boat which they occasionally use to entertain their employees and hold meetings with vendors and company executives. 9. Donations were made to qualified non-profit entities. Additional Information 10. The corporation paid $28,000 of estimated income tax (four payments of $7,000) applicable to taxable year 2021 within the corresponding quarters and dates. 11. The entity generated ($1,500,000) of net operating loss on 12/31/2020.

a. Determine the net income (loss) before contributions for the corporation as of December 31, 2021, 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 to be paid or the applicable refund of the corporation. Assume the Alternative Minimum Contribution is $0