Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Complete Form 1120 for Alvins Music Inc., using the information provided below. You need not complete Form 4797 for the sale of the equipment. Include

Complete Form 1120 for Alvins Music Inc., using the information provided below.

You need not complete Form 4797 for the sale of the equipment. Include the tax gain as other income on page one of Form 1120.

Alvins Music Inc. (AMI) was formed in 2006 by Alvin Jones and Theona Smith. Alvin and Theona incorporated AMI on June 12, 2007. AMI sells all kinds of music related products including musical instruments, sheet music, CDs and DVDs. Alvin owns 60% of the outstanding common stock and Theona owns the remaining 40%.

AMIs address is 355 Music Way, East Palo Alto CA 94303 and its EIN is 29-5748859

AMIs business activity is retail sales of music related products.

Alvin is the CEO and President. His SSN is 123-45-6789.

Theona is the Senior VP. Her SSN is 978-65-4321.

Gwen Givens is the VP of Operations. Her SSN is 321-54-6789.

Carlson Bannister is the Secretary. His SSN is 789-12-3456.

All officers devote 100% of their time to the business. Neither Gwen nor Carlson owns any stock.

AMI uses the accrual method of accounting and a calendar year. AMI made four equal estimated tax payments of $70,000 each. Its 2013 tax liability was $165,000.

AMI paid a cash dividend of $80,000 to its shareholders on December 1.

AMI

Income Statement

For the year ending December 31, 2016

Revenue from sales

$3,420,000

Sales returns and allowances

(40,000)

Cost of goods sold

(834,000)

Gross profit from operations

$2,546,000

Dividend income (less than 20% owned)

12,000

Interest income

15,000

Capital gains

8,000

Gain from disposition of fixed assets

2,000

Gross income

$2,583,000

Expenses

Total compensation

1,300,000

Depreciation

20,000

Bad debt expense

15,000

Meals and entertainment

5,000

Maintenance

5,000

Charitable donations

27,000

Property taxes

45,000

State income taxes

60,000

Other taxes

56,000

Interest

62,000

Advertising

44,000

Professional services

32,000

Pension expenses

40,000

Supplies

6,000

Other expenses

38,000

Total expenses

1,755,000

Income before taxes

828,000

Federal income tax expense

260,000

Net income after taxes

568,000

AMI has a capital loss carryover to this year of $5,000.

Amis inventory purchases were $1,134,000. AMI uses FIFO.

Of the $15,000 interest, $2,500 was from a city of Fremont bond, $3,500 was from a Pleasanton city bond, $3,000 was from a US Treasury bond and $6,000 was from a money market account.

AMI sold equipment for $10,000. The original purchase price was $12,000 and accumulated depreciation was $4,000 for book and $6,000 for tax.

On July 22, 2016, AMI sold 2,500 shares of stock for $33,000. The stock had been purchased April 24, 2006 for $25,000.

Compensation paid by AMI:

Alvin $210,000

Theona $190,000

Gwen $110,000

Carlson $90,000

Other $700,000

AMI wrote off $10,000 in accounts receivable this year.

Regular tax depreciation was $31,000.

Of the $62,000 interest expense, $56,000 was from the mortgage on the building and $6,000 was from business related loans.

The pension expense was the same for book and tax.

Other expenses included $3,000 for premiums on term key person life insurance on Alvin and Theona.

January 1, 2016

December 31, 2016

Assets

Cash

$240,000

$171,000

Accounts receivable

600,000

700,000

Allowance for doubtful accounts

(35,000)

(40,000)

Inventory

1,400,000

1,700,000

US government bonds

50,000

50,000

State and local bonds

140,000

140,000

Investments in stock

300,000

275,000

Building and equipment

1,500,000

1,600,000

Accumulated depreciation

(200,000)

(216,000)

Land

900,000

900,000

Other assets

250,000

270,000

Total assets

$5,145,000

$5,550,000

Liabilities & Equity

Accounts payable

$250,000

$220,000

Other current liabilities

125,000

120,000

Mortgages

800,000

790,000

Other liabilities

200,000

162,000

Capital stock

600,000

600,000

Retained earnings

3,170,000

3,658,000

Total liabilities & equity

$5,145,000

$5,550,000

We would expect at least pages 1-5 of Form 1120, Form 1125-A, Form 1125-E, and Schedule G.

Taxable income on page 1, line 30 should be $810,100.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Global Accounting And Control A Managerial Emphasis

Authors: Sidney J. Gray, Stephen B. Salter, Lee H. Radebaugh

1st Edition

0471128082, 978-0471128083

More Books

Students also viewed these Accounting questions