FACTS Summer Fun, Inc. is owned by Mary Sun and her husband, James Sun. The corporation manufactures large beach umbrellas (business activity code number 339900). The corporation has reported positive financial and taxable incomes since inception. The company is located at 100 Summer Way, Boca Raton, Florida 33431. The company's employer identification number is 98-7654321, and corporation uses a calendar year for tax purposes. The date of incorporation was February 9, 2010. Mary Sun (social security number 123-45-6789) is an 81 percent shareholder and president of the company. James Sun (social security number 111-11-1111) is a 19 percent shareholder and vice president of the company. Both persons devote 100 percent of their time to the corporation. Marys compensation is $187,154 per year, and Jamess compensation is $60,899 per year. The corporation is not a personal holding company. While the corporation is a 'closely-held C corporation,' it does not engage in activities to which the at-risk or passive activity loss limitations apply. The corporation files its tax return on the accrual method. Inventory has been consistently valued at Cost under the FIFO method using the full absorption procedure. Inventory capitalization rules of Internal Revenue Code Section 263A do not apply due to the 'small business exception' (average annual gross receipts for the three preceding taxable years do not exceed $25 million). Further, the business interest deduction does not apply either as the corporation meets the small business exception for this rule as well. The accounting records are computerized.

ADDITIONAL INFORMATION

1. Summer Fun, Inc. made estimated tax payments attributable to 2018 of $30,111. The corporation also had a credit from an overpayment of its prior year Federal income taxes of $3,889 that it elected to apply against its 2018 tax liability. Apply any overpayment to 2019.

2. Ignore state income taxes.

3. Dividend income is from the following sources:

Big Time Fun (Summer Fun owns 75% of all outstanding stock).............. $7,578

IBM Corp.(owns 12% of all outstanding stock) ................................... 3,120

Voltage, Inc. (owns 25% of all outstanding) ........... 17,001

Total ......................................................................................................$27,699

4. An analysis of the Allowance for Doubtful Accounts reveals:

Balance, 01/01/18 ...................................................................................................... $38,111

2018 Transactions-- Provision for bad debts ............................................................................... 4,554

Recoveries of bad debts .............................................................................. -0-

Accounts written off as uncollectible ......................................................... (2,877)

Balance, 12/31/18 ................................................................................. $39,788

5.Goodwill of $28,425 arose on purchase of another business on 01/31/16. Amortization is not being taken for financial purposes.

6. Assume that deductions for tax depreciation (i.e., Modified Accelerated Cost Recovery) for the year total $120,787. For this practice set do not complete Form 4562 (Depreciation and Amortization).

7. $94,530 of the Accrued Wages as of 12/31/17 were paid by 3/15/18. $92,547 of the Accrued Wages as of 12/31/18 were paid by 3/15/19. The M-1 should be adjusted through the Wage Expense.

8. Contributions included:

Salvation Army ............................................................................................ $4,123

Committee to Elect a local senator....................................... 2,000

Florida Food Bank ........................................................................................2,100

Total ........................................................................................................$8,223

All contributions were paid in cash during the year except for the Food Bank contribution which was pledged by the corporation (i.e., approved by the Board of Directors) on December 27, 2018 and paid on March 4, 2019.

In addition to the cash contributions above Summer Fun, Inc. donated inventory to a local charity. The fair market value of the inventory was 1,500 and the cost basis was 400.

9. Included in interest income is $1,050 from State of Florida General Obligation Bonds held throughout the current year. These bonds are included in the marketable securities account.

10. On 05/07/18 the corporation sold 2,580 shares of Voltage, Inc. common stock for $10,877. The stock had been purchased on 04/30/13 for $12,965.

11. Disregard any penalty on underpayment of estimated tax.

12. Meals expense related to various employee and owner lunches where they discussed various aspects of the business.

REQUIRED From the above information, prepare Summer Fun, Inc.'s 2018 Federal income tax return (Form 1120), including all needed supporting statements, schedules, and forms. Unless otherwise noted, assume Summer Fun, Inc. follows the policies of making all elections to minimize its current income taxes and, to the extent possible, of conforming procedures for financial and tax accounting. Round amounts to the nearest dollar.

The corporation's audited income statement and balance sheet for the current year, prepared by the accounting firm of Bering Beaufort, CPA's follows:

BALANCE SHEET	Beginning of Year	Ending of Year
ASSETS
Current Assets:
Cash & Marketable Securities	412,985	398,774
Accounts Receivables	178,954	187,954
Allowance for Doubtful Accounts	(38,111)	(39,788)
Inventory	315,874	305,111
Total Current Assets	869,702	852,051
Machinery, Building and Land:
Machinery	$ 458,784	$ 475,880
Less: Accumulated Depreciation	(175,845)	(247,215)
Building	575,998	575,998
Less: Accumulated Depreciation	(136,557)	(151,326)
Land	98,547	98,547
Total Equipment, Building and Land	820,927	751,884
Other Assets:
Goodwill	28,425	28,425
TOTAL ASSETS	1,719,054	1,632,360
LIABILITIES AND SHAREHOLDER EQUITY
Current Liabilities:
Accounts Payable	154,787	145,987
Accrued Wages	124,530	112,547
Note Payable (less than one year)	98,541	99,897
Total Current Liabilities	377,858	358,431
Notes Payable (one year or more)	329,028	228,004
Total Liabilities	706,886	586,435
Common Stock (200,000 shares authorized, 19,702 shares issued and outstanding, $10 par)	98,754	98,754
Additional Paid in Capital	589,445	589,445
Retained Earnings	323,969	357,726
Total Shareholders' Equity	1,012,168	1,045,925
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,719,054	1,632,360

STATEMENT OF RETAINED EARNINGS

Beginning Retained Earnings	323,969
Net Income for the Year	98,625
Dividend Paid in Cash	(64,868)
Ending Retained Earnings	357,726

The corporation's audited income statement and balance sheet for the current year, prepared by the accounting firm of Bering Beaufort, CPA's follows: Summer Fun, Inc. INCOME STATEMENT For the Year Ending December 31, 2018 Revenue Sales Returns & Allowance Net Sales Purchases S 4,578,936 29,887 4,549,049 3,329,878 Gross Profits 1,219,171 Operating Expenses Officer Wages Wage Expense Rent Expense Interest Expense Penalty Expense Advertising Expense Contributions Bad Debt Expense $ 248,053 512,450 36,000 58,331 1,750 10,589 8,223 4,554 125,987 11,125 64,993 10,987 5,148 15,997 Officer's Life Insurance Premiums Payroll Taxes Repairs and Maintenance Meals Miscellaneous Expense Total Operating Expenses Net Income from Operations s (1,114,187 S 104,984 Other Income and Loss: Dividend Income Interest Income Loss on the Sale of Stock S 27,699 3,150 (2,088) 28,761 $ 133,745 35.120 98,625 Net Income (Loss) before Income Tax Federal Income Tax Expense Net Income