Comprehensive Tax Return Problem. The Snap-It-Open Corporation incorporated and began operations on January 15 of the current year. Its address is 3701 Commerce Drive, Baltimore, MD 23239. Its employer identification number is 69-7414447. It elects to file its initial tax return as a calendar-year corporation and uses the accrual method of accounting. It elects the FIFO method of inventory valuation. Jason Sprull (SSN 333-33-3333) and Martin Winsock (SSN 555-55-5555) formed the business. They each contributed $250,000 cash for 50 percent of the 100,000 shares of $1 par value stock issued and outstanding. The company was formed to assemble and market a unique, compact, snap-open umbrella and its business activity code is 339900. These umbrellas are sold to a variety of organizations as premiums. The company purchases the umbrella frames and several types of waterproof fabric for the umbrella material and covers from various manufacturers. It prints the organizations' advertising logos or other designs on the umbrella material and covers. It then assembles these on the umbrella frames for delivery to the customer along with the covers. On January 16, the company placed in service two new machines that they had purchased for $250,000 each for printing and cutting the fabric for the umbrellas and two used umbrella assembly machines purchased for $200,000 each. The company obtained a bank loan of $750,000 secured by the machines. Jason and Martin were required to personally guarantee this loan that has an 8 percent annual interest rate on the unpaid balance. The first principal and interest payment of $160,000 is not due until January 16 of next year. During the year, the company purchased $250,000 of fabric and $310,000 of umbrella frames. It returned one order of frames valued at $5,000 because of a defect in the snap-open mechanism and received a cash refund for that amount. Both Jason and Martin work full-time in the business. Jason is the salesperson for the company and Martin manages the office and the printing and assembly operations. Each receives a salary of $60,000 per year. They have six employees with the following incomes for the year: $45,000 for an accountant; $21,000 for a receptionist; $28,000 for each of two print machine operators; and $25,000 for each of two assembly machine operators. There are no accrued salaries or taxes as of the end of the current year. FUTA taxes are assessed on the first $7,000 of wages at a rate of 6.0 percent. By the end of the year, the company had $1,935,000 in umbrella sales, collected $1,430,000 on these sales, and paid the following expenses in cash: Rent $240,000 Repairs and maintenance 20,000 Utilities 80,000 Taxes and licenses (excluding FICA and FUTA taxes) 10,000 Health insurance 16,000 Advertising 40,000 Travel (excluding meals) 20,000 Meals and entertainment 15,000 Group term life insurance 2,000 As an accrual-basis taxpayer, the company recognized $57,500 in interest expense on the note ($750,000 .08 11.5/12) and established an allowance account for bad debts equal to two percent of sales. They recognized depreciation expense for financial accounting equal to 10 percent of the purchase price for the new printing machines and 12.5 percent of the purchase price for the used assembly machines. Their inventory at year-end consisted of $65,000 of fabric and $68,000 of umbrella frames based on the FIFO inventory method. (For simplicity, you are only required to allocate the factory salaries to the calculation of cost of goods sold.) The company made estimated tax payments of $40,000 for the year. Prepare a financial accounting income statement (before income tax) and balance sheet for Snap-It-Open Corporation for the current year. (Do not forget to compute FICA and FUTA taxes for all employees.) Complete a Form 1120 and Form 4562 for Snap-It-Open Corporation using the following additional information. The corporation wrote off no bad debts for the year and it maximized its cost recovery deductions on the four machines purchased. Use the latest available tax forms from the IRS Web site at www.irs.gov.