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Corporate tax return problem-Custom Designs, Inc. (CDI) Tammy Adams and Fernando Hernandez each own 50% of Custom Designs, Inc. (CDI). On May 6, 2004, they

Corporate tax return problem-Custom Designs, Inc. (CDI)

Tammy Adams and Fernando Hernandez each own 50% of Custom Designs, Inc. (CDI). On May 6, 2004, they formed CDI to provide architectural services. CDIs information is summarized as follows:

  • CDI s business address is 2120 Adobe Drive, Las Cruces, NM 88011; its employer identification number is 11-1111111, and the principal business activity code is 541310.

CDIs financial statement for 2019 is show below:

Income

Professional fees

739,000

Long-term capital gain

5,000

Short-term capital gain

8,000

Long-term capital loss

6,000

Dividends distributed from Gary Inc. (CDI ownership in Gary is 17%)

20,000

Interest income

State bonds $18,000

Corporate bonds 24,000

42,000

Life insurance proceeds on the death of a key employee

500,000

Total income

1,308,000

Expenses

Salaries-officers

Tammy Adams: 190,000

Fernando Hernandez: 190,000

380,000

Salaries -clerical

61,000

Taxes (state, local , and payroll)

55,620

Advertising

17,650

Rental expenses

9,270

Repairs and maintenance

16,340

Interest expenses:

On loan to purchase state bonds

On corporate bonds

10,500

25,000

Depreciation* (depreciation for tax purpose is $42,000)

35,000

Business Meals

9,800

Total expenses

620,180

Net income before taxes

687,820

Tax

144,442

Income after tax

543,378

During 2019, CDI made estimated tax payment of $10,000 each quarter to the IRS. Prepare a Form 1120 page 1 and schedule M-1 on page 6 for CDI for tax year 2019. Taxable Income should end up being $168,220.

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