- Herman A. Baileys social security number is 456-12-3789. He is married but does not have any dependents. His wifes name is Leisa H. Bailey and her social security number is 123-45-6789. They live 1200 First Pike, City ST 12345.
- Additional information to complete the tax returns:
-
- Herman works at Intel Corporation and earned $160,000 during the tax year. His federal tax withholding was $50,000 and Arizona income taxes withheld were $8,000.
- Leisa is an employee of Healthwise Medical Supplies Company and earned a salary of 120,000. Her federal tax withholding was $40,000 and Arizona income taxes withheld were $7,000.
- Leisa made estimated tax payments of $110,000 throughout the year.
- Mortgage interest on their personal residence was $25,200 and property taxes were $5,150. The loan value of their home is less than $750,000.
- Herman and Leisa earned $2,000 from their interest bearing savings account at Canyon State Credit Union.
- They did not make any additional charitable contributions during the year.
- Herman and Leisa paid $10,000 for health insurance premiums through pre-tax payroll deductions. They also paid $6,000 for qualified medical related costs during the year.
- On July 10, 2018 they sold 1,000 shares of Intel Corporation stock for $70 per share. They purchased the stock on May 1, 2012 for $56 per share.
- The Taxpayers have a long-term capital loss carry forward of $100,000.
- Assume AMT does not apply.
- Assume QBI does not apply (and it doesnt because their Taxable income exceeds $415,000 youll find the QBI item on line 9 of from 1040).
- Apply any refund to estimated tax payments for the next year.
- Hints:
Note- the Schedule K-1 reports investment interest expense to the shareholders. Remember, investment interest expense is only deductible to the extent of investment income.
Prepare an individual and s-corporation tax return using:
- Form 1040
- Schedule 1
- Schedule 5
- Schedule A
- Schedule B
- Schedule D
- Schedule E
- Form 8949
- Form 1120S and corresponding schedules, including Schedules L and M-1. Assume all items are for the tax year ended 12/31/18 instead of 2017. Use 2018 tax forms.
- Schedule K-1 for Leisa Bailey
- Schedule D for Form 1120-S
- Form 1125-A for inventory
- Form 4652 note, assume the property for which the Sec. 179 deduction is desired was placed in service in 2018.
Check Figures:
Form 1120S, Page 1 -
- Total income, line 6: $3,245,000
- Total deductions, line 20: $1,738,072
Form 1040
Taxable income, line 10: $774,089 Total refund applied, line 21 $14,124 (use 2018 tax tables)
Schedule 1
- Line 22 should be $535,638
Schedule A
- For line 9, include the investment interest expense from the s-corporation.
- On line 11, remember to include the cash contributions from the s-corporation.
Form 8949 -
- Line 2h (Part II), $14,000
Schedule D
Schedule E
62 Through 4. Ignore the U.S. (domestic production activities deduction. Prepare a 2017 S corporation tax return for Bottle-Up, showing yourself as the paid preparer. Refer to the facts in Tax Form/Return Preparation Problem C:9-58. Now assume the com- pany is an Scorporation rather than a partnership. Additional facts are as follows: Drs. Bailey and Firth formed the corporation on January 1, 2016, and the corporation immediately clected Scorporation status effective at the beginning of 2016. Upon formation of the corporation, Dr. Bailey received common stock worth $960,000, and Dr. Firth received common stock worth $2.24 million. The balance sheet information is the same as in Table C.9-3 except the equity section is as follows: January 1, 2017 December 31, 2017 Common stock $3,200,000 $3,200,000 Retained carnings 137,088 266,876 The $120,000 paid to Dr. Bailey is salary constituting W-2 wages instead of a guaran teed payment). Ignore employment taxes (Social Security, etc.) on Dr. Baileys salary. Ignore the U.S. (domestic) production activities deduction. Use book numbers for Schedule I. and Schedule M-1 in Form 1120S. TABLE C-11-2 Bottle-Up, Inc. Income Statement for the Year Ended December 31 of the Current Year (Problem C11-61) $2.500,000 (15,000) 52,485,000 Sales Returns and allowances Net sales Beginning inventory Purchases Labor Supplies Utilities Other manufacturing costs Goods available for sale Ending inventory Gross profit Salaries Utilities experie Depreciation (MACRS depreciation is $36,311) Automobile and truck expense Office supplies expense Advertising expense Bad debts expense Rent expense $ 102,000 900,000 200.000 80,000 100,000 188.000 $1,570,000 (96,000) 1.474,000 $1,011,000 $ 451,020 54.000 11,782 26,000 9.602 105,000 620 30,000 1.500 21.000 100.000 38 000 4.500 9,000 Meals and entertainment expense Repairs and maintenance Accounting and legal experne Charitable contributions TUUU U c = Scorporatrons Corporation 24,500 11,000 36.990 2,500 1,000 (938,000) 5 77,996 Insurance expense Hourly employees' fringe benefits Payroll taxes Other taxes Penalties (fines for overweight trucks) Operating profit Other income and losses Long-term gain on sale of capital assets Sec. 1231 loss Interest on US. Taury bills Interest on State of Florida bonds Dividends from domestic corporations Investment experies Net income $ 48,666 (1.1007 1.200 600 11,600 (600) 60,366 $13.12 To MNCRS der i 4011. Are th e degreciation has the need to cost of for both lock and purposes so that the back and as wetery and conte n ts are the the AMT depreciation a n on pran property is $9.000 The could goch damunt lects the form on les of Sec. 24. The pr esents have been made in prioryan "Officers of $120,000 rented in the wall are employers w2g mentre esperes her interesado e Nene of the inte per to the phone come The corporation made in cash o g har Indudes 3,000 for polis on lives of comp l es s the beneficiary for both polo The corporation acquired the laws on March 2015 for $100.000 and them on September 15, 2017. for $1466 The comple t e se. r o 2016 and 1, 2017 WR TABLE C11-3 Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year (Problem C11-61) January 1 December 31 51169 Accounts recevable Stocks State of Florida bonds Building and equipment Minus Accurated depreciation $15.000 41,500 102,000 103.000 15.000 10.000 174.600 (160 160.000 5660 616 7400 16,000 10.00 125.000 (172 1001 190.000 5250028 Labtes and equities Accounts payable Accrued lanes pale Payroll taxes payable S6000 12 000 Det Me Heart Mortgage and les paye un Long term det Capital och 1172 1565 Liabilities and equities Accounts payable Accrued salaries payable Payroll taxes payable Sales taxes payable Due to Mr. Hiebert Mortgage and notes payable (current maturities) Long-term debt Capital stock Retained earnings Total $36,000 12,000 3,416 5,200 10,000 44,000 210,000 10,000 330,000 5660,616 $ 10,000 6,000 7,106 6,560 5,000 52,000 260,000 10,000 393,362 $750,028 Chapter 11 TABLE C11-4 Bottle-Up, Inc. Statement of Change in Retained Earnings for the current Year Ended December 31 (Problem C11-61) $330,000 Balance, lanuary 1 Plus: Net income Minus: Dividends $133,362 (10,000) 63,362 Balance, December 31 $393,362 The lawy 1 accumulated austments account balance is $274,300. Required: Prepare the 2017 S corporation tax return (Form 1120S), including the fol- lowing additional schedules and forms: Schedule D, Form 4562, and Schedule K-1. Optional: (1) Complete Schedule M-2 in Form 11205 even though the company has never been a C corporation. For this purpose, the accumulated adjustments account at the beginning of 2017 is $137,088.(2) Prepare a schedule for each shareholder'basis in his or her Scorporation stock. For this purpose, Bailey stock basis at the beginning of 2017 is $1,001,126 and Firth's is $2,028,762. 62 Through 4. Ignore the U.S. (domestic production activities deduction. Prepare a 2017 S corporation tax return for Bottle-Up, showing yourself as the paid preparer. Refer to the facts in Tax Form/Return Preparation Problem C:9-58. Now assume the com- pany is an Scorporation rather than a partnership. Additional facts are as follows: Drs. Bailey and Firth formed the corporation on January 1, 2016, and the corporation immediately clected Scorporation status effective at the beginning of 2016. Upon formation of the corporation, Dr. Bailey received common stock worth $960,000, and Dr. Firth received common stock worth $2.24 million. The balance sheet information is the same as in Table C.9-3 except the equity section is as follows: January 1, 2017 December 31, 2017 Common stock $3,200,000 $3,200,000 Retained carnings 137,088 266,876 The $120,000 paid to Dr. Bailey is salary constituting W-2 wages instead of a guaran teed payment). Ignore employment taxes (Social Security, etc.) on Dr. Baileys salary. Ignore the U.S. (domestic) production activities deduction. Use book numbers for Schedule I. and Schedule M-1 in Form 1120S. TABLE C-11-2 Bottle-Up, Inc. Income Statement for the Year Ended December 31 of the Current Year (Problem C11-61) $2.500,000 (15,000) 52,485,000 Sales Returns and allowances Net sales Beginning inventory Purchases Labor Supplies Utilities Other manufacturing costs Goods available for sale Ending inventory Gross profit Salaries Utilities experie Depreciation (MACRS depreciation is $36,311) Automobile and truck expense Office supplies expense Advertising expense Bad debts expense Rent expense $ 102,000 900,000 200.000 80,000 100,000 188.000 $1,570,000 (96,000) 1.474,000 $1,011,000 $ 451,020 54.000 11,782 26,000 9.602 105,000 620 30,000 1.500 21.000 100.000 38 000 4.500 9,000 Meals and entertainment expense Repairs and maintenance Accounting and legal experne Charitable contributions TUUU U c = Scorporatrons Corporation 24,500 11,000 36.990 2,500 1,000 (938,000) 5 77,996 Insurance expense Hourly employees' fringe benefits Payroll taxes Other taxes Penalties (fines for overweight trucks) Operating profit Other income and losses Long-term gain on sale of capital assets Sec. 1231 loss Interest on US. Taury bills Interest on State of Florida bonds Dividends from domestic corporations Investment experies Net income $ 48,666 (1.1007 1.200 600 11,600 (600) 60,366 $13.12 To MNCRS der i 4011. Are th e degreciation has the need to cost of for both lock and purposes so that the back and as wetery and conte n ts are the the AMT depreciation a n on pran property is $9.000 The could goch damunt lects the form on les of Sec. 24. The pr esents have been made in prioryan "Officers of $120,000 rented in the wall are employers w2g mentre esperes her interesado e Nene of the inte per to the phone come The corporation made in cash o g har Indudes 3,000 for polis on lives of comp l es s the beneficiary for both polo The corporation acquired the laws on March 2015 for $100.000 and them on September 15, 2017. for $1466 The comple t e se. r o 2016 and 1, 2017 WR TABLE C11-3 Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year (Problem C11-61) January 1 December 31 51169 Accounts recevable Stocks State of Florida bonds Building and equipment Minus Accurated depreciation $15.000 41,500 102,000 103.000 15.000 10.000 174.600 (160 160.000 5660 616 7400 16,000 10.00 125.000 (172 1001 190.000 5250028 Labtes and equities Accounts payable Accrued lanes pale Payroll taxes payable S6000 12 000 Det Me Heart Mortgage and les paye un Long term det Capital och 1172 1565 Liabilities and equities Accounts payable Accrued salaries payable Payroll taxes payable Sales taxes payable Due to Mr. Hiebert Mortgage and notes payable (current maturities) Long-term debt Capital stock Retained earnings Total $36,000 12,000 3,416 5,200 10,000 44,000 210,000 10,000 330,000 5660,616 $ 10,000 6,000 7,106 6,560 5,000 52,000 260,000 10,000 393,362 $750,028 Chapter 11 TABLE C11-4 Bottle-Up, Inc. Statement of Change in Retained Earnings for the current Year Ended December 31 (Problem C11-61) $330,000 Balance, lanuary 1 Plus: Net income Minus: Dividends $133,362 (10,000) 63,362 Balance, December 31 $393,362 The lawy 1 accumulated austments account balance is $274,300. Required: Prepare the 2017 S corporation tax return (Form 1120S), including the fol- lowing additional schedules and forms: Schedule D, Form 4562, and Schedule K-1. Optional: (1) Complete Schedule M-2 in Form 11205 even though the company has never been a C corporation. For this purpose, the accumulated adjustments account at the beginning of 2017 is $137,088.(2) Prepare a schedule for each shareholder'basis in his or her Scorporation stock. For this purpose, Bailey stock basis at the beginning of 2017 is $1,001,126 and Firth's is $2,028,762
