Form 1120-S Practice Tax Return

Facts in 2015:

ABC Inc., a S Corporation, 123 Oak Dr Houston TX 77002

EIN-74-111111

Date S election effective- 1/1/2000

Date Incorporated 1/1/2000

Business Activity, retail sales (product-clothing)

Business Code 99999

The corporation is a cash basis business

Total Assets $5,000,000

Gross Receipts $1,000,000

Cost of Goods Sold $400,000 (assume no beginning and ending inventory and purchases are $400,000)

ABC Inc. uses the lower of cost or market method for valuing inventory and also

uses the FIFO method for determining the cost of goods sold

Compensation to Bee Jones, 40% shareholder/President was $200,000

ABC Inc. has three shareholders (Bee Jones 40%, John Smith 40% and Julie

Smart 20%).All shareholders materially participate in the business.

Salaries and wages paid to employees were $50,000

Office Rent paid for corporate office was $10,000

Supplies expense totaled $40,000

The corporation received insurance proceeds of $150,000 for life insurance on a

key executive.Relative insurance premiums paid for the year were $5,000.

Beginning Balances:Accumulated Adjustments Account $100,000

Other Adjustments Account$25,000

Net Income per Books was $445,000 including Life insurance proceeds of

$150,000 and Life Insurance Premiums of $5,000.

There were no distributions made to the shareholders.

The corporation has no debts.

The corporation has engaged you to prepare the 2015 Form 1120-S (pages 1-5 excluding

Schedule L on page 4) for the ABC, Inc... Also, prepare the Schedule K-1 for Bee Jones,

40% shareholder (SSN:123-45-6789).Be sure to sign the return as the preparer.

Form 1120S - Additional Information The tax return for an S Corporation is similar to the C Corporation tax return, as well as, the Partnership tax return. Exhibit 22-4 in the textbook provides a comparison of the tax consequences of the three entities. Due to the similarities, Tax Form 1120S is very similar to Tax Form 1120, and the tax form 1120S Schedule K-1 is very similar to the tax form 1065 Schedule K-1. Listed below is additional information to assist you in the preparation of the 1120S. The tax forms can be found at IRS.gov or under Student Resources in the Library in Connect. Tax Form 1120S Page 1 The income and expense reporting is similar to the C corporation. Remember to exclude items that are tax exempt or non-deductible. Page 3 Schedule K The Schedule K for tax form 1120S is very similar to the 1065 Schedule K. The only lines that need to be completed are 1, 16b, 16c and 18. If the S corporation has any pass through income (such as interest or dividend income) or pass through expenses (such as charitable deductions) these items would be reported on Schedule K. This problem does not have any pass through items to report. However, there are two items (tax-exempt income and a non-deductible expense) that do affect the shareholder's basis and are reported on lines 16b and 16c. The information on this page will be used to prepare Bee's Schedule K-1. Page 4 Schedule L You do not need to prepare Schedule L. Page 5 Schedule M-1 This schedule is similar to the 1120 Schedule M-1. The purpose of this schedule is to reconcile the book income to the tax income. Line 8 on the Schedule M-1 should be the same as line 21 on page 1. For this return, there are two reconciling items - tax exempt income and non-deductible expense. Page 5 Schedule M-2 You only need to prepare column (a) Accumulated Adjustments Account. Schedule K-1 - The preparation of the 1120S Schedule K-1 is similar to the preparation of the 1065 Schedule K-1. Use the information on Schedule K page 3 of the 1120S to complete Schedule K-1. Remember to only include Bee's percentage of the items on Schedule K on her Schedule K-1. Thank you and please let me know if you have any questions