I need help with Number 1, the 1120 form. everything else is just the detail

Business 123A Corporate Tax Return Project - Ver. 1.1 Facts You (The Paid Tax Preparer) Your name is William Baker. You are a CPA and Senior Tax Manager in the CPA firm of Jones and Miller, LLP. Your preparer tax identification number (PTIN) is P00389571. Your Firm (Who You Work For) Jones and Miller's address is 230 Hollister Avenue - San Francisco, CA 94131 and its phone number is (650) 686-7777. The firm's EIN is: 40-3698221. The Client Your client is Daisy Music Village Inc. Its address is: 1060 Gilman Avenue - Jacinto, TX 77015. Its phone number is: (512) 333-3333. Daisy Music Village is a seller of musical instruments at the wholesale level. Its Employer Identification Number is 61-2085417. It was incorporated in Texas on 10/15/2001. It is a non-publicly traded (private) corporation. The only corporate officer authorized to sign its tax returns is Kimberly Brown. Her social security number is 357-89-2145 and she is a citizen of the United States. She is the President of the corporation. Kimberly owns 78% of the shares of the corporation. She has owned 78% of the shares since the corporation was formed in 2001. She spent 2,125 hours working for the corporation in 2019. She was paid base wages of $1,380,000 as well as a $107,000 cash bonus in 2019 (the cash bonus was paid to her in 2019, but it related to the financial success of the corporation for 2018). She received no other bonuses or other incentive-based compensation in 2019. For years the corporation had an employment contract in place with Kimberly since she was hired back in 2001. It was the same employment contract for many years. 1 However, the contract was completely changed, with material changes, on December 31, 2018. Kimberly's home address is 1003 Oakwood Way - Jacinto, TX 77029. Her phone number is (530) 555-5555. The Chief Financial Officer of the corporation is Maggie Chen. She spent 2,452 hours working for the corporation in 2019. She was paid base wages of $858,612 in 2019. Maggie's social security number is 109-20-4586 and her home address is 222 Rosemary Way - Jacinto, TX 77015. Maggie does not own any shares in the corporation. She is also a citizen of the United States. She is also the interim Treasurer and Secretary of the corporation until they can find individuals to fill those officer positions. Neither Kimberly nor Maggie worked anywhere else other than at Daisy Music Village in 2019. There are no other officers for the corporation. In addition, the only shares in the corporation are in the form of common stock. There are no preferred shares. There is one other shareholder in the corporation: Don Smiths. Don owned 22% of the shares of the corporation throughout the year. He has owned the same percentage of the corporation's stock since it was incorporated in 2001. He is a citizen of the United States. Don's social security number is 210-39-4732 and his home address is 2147 Gallatin Way - Jacksonville, TX 75766. His phone number is (409) 555-5555. Daisy Music Village uses the cash basis of accounting for both financial accounting and tax return purposes. It has a December 31 year-end for both financial accounting and tax purposes. Its 2019 financial accounting-based income statement and balance sheet starts on the following page. 2 2019 Income Statement Revenues Gross sales: Less: Customer returns $16,077,000 $(182,600) $204,000 Dividends: $326 Interest (from Bank Accounts): Interest on U.S. Treasury Bonds: Interest on Bolt Corp. Bonds State of Georgia Bond Interest: City of Jacinto, TX Bond Interest $1,598 $853 $516 $405 Cost of Goods Sold Inventory as of 1/1/19 Inventory purchased during 2019 Inventory as of 12/31/19 $3,395,216 $7,423,679 $3,430,490 [Note: All inventory figures are valued based on original cost and using the specific identification method because their computer systems can track the cost of each individual item sold. IRC Sect. 263A (UNICAP) does not apply to the corporation; there were no changes in the method of valuing inventories; and there were no writedowns of subnormal goods in 2019.] 3 Expenses Other than Cost of Goods Sold) Warehouse rent: $220,126 Accounting Services: $31,125 Office Supplies: $26,458 Repairs and maintenance: $5,217 Depreciation: $1,600 Mortgage Interest Expense: $2,390 Lobbying $9,500 Entertainment: $17,200 Meals: $9,145 (meals: by employees, while out of town on business trips) Travel: $28,165 (travel: by employees, while out of town on business trips - includes airfare and hotels) Charitable Contributions (cash) $52,360 Wages - Officers: $2,345,612 Wages (other employees): $614,755 2 & 3 Amounts paid to an outside lobbyist who went various members of Congress to ask for support of legislation to relax the Federal rules on small musical instrument safety. No legislation was even written in 2019 by any member of Congress. * Three of the employees were certified by a designated local agency as being a member of a targeted WOTC group. Employee #1, Robert Rodriguez, worked 2,200 hours for the year and was paid $26,400 in wages. He is in within the "regular" WOTC group, Employee #2. Joanne Cao, worked 315 hours for the year and was paid $3,780 in wages. She is also in within the "regular" WOTC group, Employee #3, Maria Garcia, worked 1,800 hours for the year and was paid $25,200 in wages. She is certified to be in the long-term family assistance recipients WOTC category. Robert and Joanne were hired and started work on January 1, 2019. Maria was hired and started work the prior year on January 1, 2018. *One of its employees, Erin Huang (Social Security number 615-15-2561), was paid $3,800 in specially designated pald family leave for four weeks so she could take care of her sick mother who had a very serlous health condition. Erin's normal salary is $1,000 per week and she has worked for the company since 2005. She earned $38,500 of wages in the prior tax year (2018), Daisy Music Village's family and medical leave program meets all of the requirements of IRC Sect. 45$ and the guidance set forth in IRS Notice 2018-71, None of the $3,800 was paid out of 4 Federal Payroll Taxes: $110,280 Fines and Penalties $8,600 Other Income/Expense $7,060 Gain on sale of Government Debt Investments Loss on sale of corp. debt investments Gain on the sale of Business Assets Gain on the exchange of real property? ($500) $43,000 $400,000 NET INCOME $?????? (The client was too busy to calculate this figure and they have asked you to complete this for them as a separate engagement from the preparation of the tax retums.) Erin's sick time or vacation time. It was specifically paid through the terms of the company's written famlly and medical leave plan. The $3,800 paid under the plan is already included in the total amount of wages paid to non-officers of the corporation for the year. Daisy Music Village's written Family and Medical leave program/policy complies with the "non-interference" language requirement under pertinent laws. Sold some of its State of Georgia bonds on 8/1/19 for $12,160 to an unrelated party. The bonds that were sold were purchased on 12/06/14 for $5,100. Daisy Music Village received an IRS Form 1099-B showing the sale of these bonds, but the tax basis of these bonds was not provided to the IRS on the 1099-8. Sold some of its Bolt Corp. bonds on 10/1/19 for $900 (its fair market value) to Kimberly Brown. The bonds that were sold were purchased on 12/15/12 for $1,400. Daisy Music Village did not receive an IRS Form 1099-B showing the sale of these bonds. The $43,000 gain on the sale of business assets In 2019 refers to the sale of the forklift to an unrelated party on 4/3/19 for $47,000. Daisy Music Village paid a $4,000 commission expense to a broker related to the sale of the forklift. See additional details on the forklift in footnote #9 below. 7 See additional details in footnote #8 below. 5 12/31/2018 Year-End Balance Sheet Cash: $4,318,952 Inventory: $3,395,216 Land $400,000 Stock in Jadis Corp. $60,000 U.S. Treasury Stock $45,000 State of Georgia Bonds $90,000 City of Jacinto, TX Bonds $30,000 Bolt Corp. Bonds $15,500 Forklift (Cost) $250,000 Less: Accumulated Depreciation on Personal Property ($250,000) Fixed Assets (Personal Property) - Net Book Value $0 Liabilities Mortgage Payable $35,000 Shareholders' Equity Common Stock $1,000,000 "While Daisy Music Village rents the warehouse in which it operates, it owned a vacant piece of property 3 miles away for many years. The property was used to store some of its excess packaging in case they did not have room in their warehouse. The property was originally purchased for $400,000 on 9/13/2012. The address for this property was 28 Newhall Way-Jacinto, TX 75011. On May 28, 2019, this property was exchanged with another, unrelated taxpayer, for another vacant lot that will also be used as a place to store excess packaging The fair market value of the 28 Newhall Way property at the time of the exchange was $800,000 The replacement property is located at 2333 Bolero Road - Waco, TX 76708. The fair market value of the Bolero Road property at the time of the exchange was $765,000. There were no expenses related to the exchange and the other party assumed the mortgage on the Newhall Way property (a $35,000 liability at the time of the exchange). Originally purchased for $250,000 and placed in service on 03/15/2008. Was fully deprecated for financial accounting and tax purposes prior to 2019. Sold for $47,000 on 4/3/19, but incurred $4,000 of commission expenses related to the sale. This was the only fixed asset for the corporation as of 12/31/18 other than the land. 6 Retained Earnings - Unappropriated! $7,319,668 12/31/2019 Year-End Balance Sheet Assets Cash: Inventory: Land: Stock in Jadis Corp. U.S. Treasury Stock State of Georgia Bonds Bolt Corp. Bonds City of Jacinto, TX Bonds Pre-Paid Federal Inc. Tax" New Copier Less: Accumulated Depreciation New Desk for Maggie (Cost)" Less: Accumulated Depreciation Fixed Assets (Personal Property) - Net Book Value $4,599,946 $3,430,490 $765,000 $60,000 $45,000 $84,900 $14,100 $30,000 $500,000 $30,000 ($1,500) $5,000 ($100) $33,400 (Cost) 12 14 All retained earnings are unappropriated. 11 2019 Federal estimated taxes were paid in 2019. They were paid in four installments as follows: $125,000 on 4/11/19; $125,000 on 6/14/19; $125,000 on 9/13/19 and $125,000 on 12/13/19. 12 Purchased and placed in service on 5/04/19. Daisy Music Village elects to take the maximum cost recovery on this asset in 2019 under IRC Sed 179, and if applicable, they do not elect out of first-year bonus depreciation. Purchased and placed in service on 7/4/19. Daisy Music Village does not elect to take any cost recovery on this asset in 2019 under IRC Sect 179. However, if applicable, they do not elect out of first-year bonus depreciation. 7 Liabilities None $0 Shareholders' Equity Common Stock $ 1,000,000 Retained Earnings - Unappropriated ?????? (The client was too busy to calculate this figure and they have asked you to complete this for them as a separate engagement from the preparation of the tax returns) Detailed Task 1) After completing the few items that Daisy Music Village was not able to provide to you in its prepared draft financial statements, using only the blank forms available at: www.IRS.gov, prepare Daisy Music Village's Federal income tax return (Form 1120) for the 2019 Tax Year - including the following schedules and forms (you must attach these forms in the required order as detailed by the IRS): Schedule D Form 1125-A Schedule G Form 1125-E Form 3800 Form 4562 Form 4797 Form 5884 Form 8824 Form 8949 Form 8994 The required portions of Schedule M-3 2) For any part of the tax return where a statement is required, you must attach a statement to the end of the tax retum as the last attachment to the 1120 return (before the information returns) - with a reference to what form and line of the return it applies to, as well as the name of the taxpayer and the EIN of the taxpayer on the top of each statement page. 8 3) Also, [THIS IS VERY IMPORTANT] prepare and include filing extension forms for BOTH Form 1120 AND for the 1099 forms (two 1099-MISC forms and two 1099 DIV forms) for the 2019 tax year (attach these extensions behind the 1120 form (and behind the forms/schedules attached to the 1120)). You will also need to prepare the two 1099-MISC forms and two 1099-DIV forms If an extension form has a required date field on the form, use the date that would have been the last day that the extension form would have been required to be filed 4) All of the repairs and maintenance services were performed to Daisy Music Village by another corporation (Repairs R Us, Inc. - 578 Culture Drive - Jacinto, TX 75011; EIN - 77-1581297; Phone (713) 555-5556. 5) The entertainment expenses were for tickets for the Houston Rockets NBA basketball team. Daisy Music Village took out its biggest clients and vendors to discuss business matters at all of the games. 6) In addition to signing the tax return as the paid preparer, for purposes of this project also actually sign the return as the taxpayer (keeping in mind you would not do this in real practice). 7) You do not need to prepare any payroll tax returns or forms (such as the W-2 or W-3) for the client (Maggie handles the payroll tax returns herself for the corporation). Other Important Items: 1) The landlord for the warehouse that Daisy Music Village rents is Kevin Lee. Kevin's address is 578 Jay Way, Menlo Park, CA 94025. His tax ID is 20-1484863 and his phone number is (650) 555-8888. 2) All of the amounts paid in 2019 for accounting services was paid to Jones and Miller, LLP. 3) Daisy Music Village Corporation is not a subsidiary in an affiliated group or a parent-subsidiary group. 9 4) Daisy Music Village Corp. purchased 6,000 shares in Jadis Corporation, a U.S.-based corporation that specializes in the management of junkyards on October 5, 2012 for $60,000. Jadis Corp. had 19,500 shares outstanding throughout 2019. On October 31, 2019, Daisy Music Village received a $204,000 dividend check from Jadis Corporation. Jadis Corporation's Employer Identification Number is 77-2573648. 5) The two shareholders in Daisy Music Village Inc. had the same ownership in the corporation throughout the year. 6) Daisy Music Village has an $10,000 NOL carryover into the 2019 tax year. 7) For Schedule K of Form 1120, you are given that the answers to question nos. 14, 17, 18, 19, 20, 21, 22, 23, 24 and 25 are "no" and the checkbox to no. 8 is to be unchecked. 8) Your client has asked you to file the return with the fewest number of required schedules filled-out on the 1120 form as legally possible. 9) $60,000 of cash distributions from Daisy Music Village Corp. were made in 2019. Each of the two shareholders received cash distributions based on their percentage ownership in the corporation. All cash distributions were paid on December 30, 2019. 10)On 10/15/2001, the corporation issued common stock to its two initial (and still current) shareholders with the two shareholders paying the following amounts for the stock: $780,000 for Kimberly and $220,000 for Don 11) If there is an amount due for the year on the 1120, the client (as a corporation) will need to pay the IRS electronically (i.e., not via check). However, for purposes of this tax retum project, if tax is due for the year you do not need to prepare any payment documentation - simply show the amount due on the appropriate line(s) of the 1120 tax return accordingly. 10 Also, if tax is due for the year, you do not need to calculate any penalties or interest - just the base tax due. On the other hand, if there is a refund due to the client on the 1120 tax return for the year, the client wants to receive the refund in the form of a check (i.e. they do not want any portion of the refund credited to next year's Federal income taxes). 12)All amounts contributed to charitable organizations for the year were made in cash, all of the charities were IRS-qualified charities, and the charities all provided the client with the required documentation in a timely manner. 13)All wages paid to shareholders are ordinary, necessary, and reasonable in amount, with none being disguised dividends. 14)All expenses - including wages paid to shareholders - are ordinary, necessary, and reasonable, with none being disguised dividends. 15)None of the entertainment expenses are lavish or extravagant. 16)None of the wages are includable in cost of goods sold. 17) All of the corporate bonds that were owned either at the beginning of the year or at the end of the year mature more than five years after the end of the 2019 tax year and the client did not expect to sell them or convert any of them into cash until they mature. The small sale of corporate bonds in 2019 was unexpected and it was not easy to sell these particular bonds as they were not readily traded on an exchange (they were not liquid assets that were readily convertible into cash). 18)For Schedule K of Form 1120, you are given that the answers to question nos. 14, 17, 18, 19, 20, 21, 22, 23, 24 and 25 are "No" and the checkbox to no. 8 is to be unchecked. 11 19)For Schedule J, you can skip lines 3; 5a; 5b; 5d; 5e; 9a-9f; 10; 12; 13; 15; 17; 18; 20a-20d; 21and 22. Any other parts that are applicable in Schedule J must be completed. For a non-skip line in Schedule J, you will need to determine if a figure goes on that line. There is a possibility that at least one non-skip line in Schedule J is still not applicable. If not applicable, simply put "O" for that line. 20) For Form 3800, you skip: all of Part I (but put down O for line 6); Lines 10a-c, 18-26 and 31-35 of Part II 21) Your client allows you to discuss its tax return with the IRS. 22) The client has never had its financial statements audited nor has it ever had to restate its financial statements. Final Project Notes: 1) VERY IMPORANT: Your group must e-mail an electronic copy of the project to me by the due date and time (at the beginning of class) either through Canvas or at: joel.busch@sjsu.edu 2) Please have the group member names included in the e-mailed submission. 3) VERY IMPORTANT - You are to only work on this project only with your fellow group members. 4) Late submissions (after the beginning of class on December 1, 2020) of the project are subject to a significant reduction of points. 5) A separate peer-review report must be completed for each team member by each team member and e-mailed to me by December 3. 12 Business 123A Corporate Tax Return Project - Ver. 1.1 Facts You (The Paid Tax Preparer) Your name is William Baker. You are a CPA and Senior Tax Manager in the CPA firm of Jones and Miller, LLP. Your preparer tax identification number (PTIN) is P00389571. Your Firm (Who You Work For) Jones and Miller's address is 230 Hollister Avenue - San Francisco, CA 94131 and its phone number is (650) 686-7777. The firm's EIN is: 40-3698221. The Client Your client is Daisy Music Village Inc. Its address is: 1060 Gilman Avenue - Jacinto, TX 77015. Its phone number is: (512) 333-3333. Daisy Music Village is a seller of musical instruments at the wholesale level. Its Employer Identification Number is 61-2085417. It was incorporated in Texas on 10/15/2001. It is a non-publicly traded (private) corporation. The only corporate officer authorized to sign its tax returns is Kimberly Brown. Her social security number is 357-89-2145 and she is a citizen of the United States. She is the President of the corporation. Kimberly owns 78% of the shares of the corporation. She has owned 78% of the shares since the corporation was formed in 2001. She spent 2,125 hours working for the corporation in 2019. She was paid base wages of $1,380,000 as well as a $107,000 cash bonus in 2019 (the cash bonus was paid to her in 2019, but it related to the financial success of the corporation for 2018). She received no other bonuses or other incentive-based compensation in 2019. For years the corporation had an employment contract in place with Kimberly since she was hired back in 2001. It was the same employment contract for many years. 1 However, the contract was completely changed, with material changes, on December 31, 2018. Kimberly's home address is 1003 Oakwood Way - Jacinto, TX 77029. Her phone number is (530) 555-5555. The Chief Financial Officer of the corporation is Maggie Chen. She spent 2,452 hours working for the corporation in 2019. She was paid base wages of $858,612 in 2019. Maggie's social security number is 109-20-4586 and her home address is 222 Rosemary Way - Jacinto, TX 77015. Maggie does not own any shares in the corporation. She is also a citizen of the United States. She is also the interim Treasurer and Secretary of the corporation until they can find individuals to fill those officer positions. Neither Kimberly nor Maggie worked anywhere else other than at Daisy Music Village in 2019. There are no other officers for the corporation. In addition, the only shares in the corporation are in the form of common stock. There are no preferred shares. There is one other shareholder in the corporation: Don Smiths. Don owned 22% of the shares of the corporation throughout the year. He has owned the same percentage of the corporation's stock since it was incorporated in 2001. He is a citizen of the United States. Don's social security number is 210-39-4732 and his home address is 2147 Gallatin Way - Jacksonville, TX 75766. His phone number is (409) 555-5555. Daisy Music Village uses the cash basis of accounting for both financial accounting and tax return purposes. It has a December 31 year-end for both financial accounting and tax purposes. Its 2019 financial accounting-based income statement and balance sheet starts on the following page. 2 2019 Income Statement Revenues Gross sales: Less: Customer returns $16,077,000 $(182,600) $204,000 Dividends: $326 Interest (from Bank Accounts): Interest on U.S. Treasury Bonds: Interest on Bolt Corp. Bonds State of Georgia Bond Interest: City of Jacinto, TX Bond Interest $1,598 $853 $516 $405 Cost of Goods Sold Inventory as of 1/1/19 Inventory purchased during 2019 Inventory as of 12/31/19 $3,395,216 $7,423,679 $3,430,490 [Note: All inventory figures are valued based on original cost and using the specific identification method because their computer systems can track the cost of each individual item sold. IRC Sect. 263A (UNICAP) does not apply to the corporation; there were no changes in the method of valuing inventories; and there were no writedowns of subnormal goods in 2019.] 3 Expenses Other than Cost of Goods Sold) Warehouse rent: $220,126 Accounting Services: $31,125 Office Supplies: $26,458 Repairs and maintenance: $5,217 Depreciation: $1,600 Mortgage Interest Expense: $2,390 Lobbying $9,500 Entertainment: $17,200 Meals: $9,145 (meals: by employees, while out of town on business trips) Travel: $28,165 (travel: by employees, while out of town on business trips - includes airfare and hotels) Charitable Contributions (cash) $52,360 Wages - Officers: $2,345,612 Wages (other employees): $614,755 2 & 3 Amounts paid to an outside lobbyist who went various members of Congress to ask for support of legislation to relax the Federal rules on small musical instrument safety. No legislation was even written in 2019 by any member of Congress. * Three of the employees were certified by a designated local agency as being a member of a targeted WOTC group. Employee #1, Robert Rodriguez, worked 2,200 hours for the year and was paid $26,400 in wages. He is in within the "regular" WOTC group, Employee #2. Joanne Cao, worked 315 hours for the year and was paid $3,780 in wages. She is also in within the "regular" WOTC group, Employee #3, Maria Garcia, worked 1,800 hours for the year and was paid $25,200 in wages. She is certified to be in the long-term family assistance recipients WOTC category. Robert and Joanne were hired and started work on January 1, 2019. Maria was hired and started work the prior year on January 1, 2018. *One of its employees, Erin Huang (Social Security number 615-15-2561), was paid $3,800 in specially designated pald family leave for four weeks so she could take care of her sick mother who had a very serlous health condition. Erin's normal salary is $1,000 per week and she has worked for the company since 2005. She earned $38,500 of wages in the prior tax year (2018), Daisy Music Village's family and medical leave program meets all of the requirements of IRC Sect. 45$ and the guidance set forth in IRS Notice 2018-71, None of the $3,800 was paid out of 4 Federal Payroll Taxes: $110,280 Fines and Penalties $8,600 Other Income/Expense $7,060 Gain on sale of Government Debt Investments Loss on sale of corp. debt investments Gain on the sale of Business Assets Gain on the exchange of real property? ($500) $43,000 $400,000 NET INCOME $?????? (The client was too busy to calculate this figure and they have asked you to complete this for them as a separate engagement from the preparation of the tax retums.) Erin's sick time or vacation time. It was specifically paid through the terms of the company's written famlly and medical leave plan. The $3,800 paid under the plan is already included in the total amount of wages paid to non-officers of the corporation for the year. Daisy Music Village's written Family and Medical leave program/policy complies with the "non-interference" language requirement under pertinent laws. Sold some of its State of Georgia bonds on 8/1/19 for $12,160 to an unrelated party. The bonds that were sold were purchased on 12/06/14 for $5,100. Daisy Music Village received an IRS Form 1099-B showing the sale of these bonds, but the tax basis of these bonds was not provided to the IRS on the 1099-8. Sold some of its Bolt Corp. bonds on 10/1/19 for $900 (its fair market value) to Kimberly Brown. The bonds that were sold were purchased on 12/15/12 for $1,400. Daisy Music Village did not receive an IRS Form 1099-B showing the sale of these bonds. The $43,000 gain on the sale of business assets In 2019 refers to the sale of the forklift to an unrelated party on 4/3/19 for $47,000. Daisy Music Village paid a $4,000 commission expense to a broker related to the sale of the forklift. See additional details on the forklift in footnote #9 below. 7 See additional details in footnote #8 below. 5 12/31/2018 Year-End Balance Sheet Cash: $4,318,952 Inventory: $3,395,216 Land $400,000 Stock in Jadis Corp. $60,000 U.S. Treasury Stock $45,000 State of Georgia Bonds $90,000 City of Jacinto, TX Bonds $30,000 Bolt Corp. Bonds $15,500 Forklift (Cost) $250,000 Less: Accumulated Depreciation on Personal Property ($250,000) Fixed Assets (Personal Property) - Net Book Value $0 Liabilities Mortgage Payable $35,000 Shareholders' Equity Common Stock $1,000,000 "While Daisy Music Village rents the warehouse in which it operates, it owned a vacant piece of property 3 miles away for many years. The property was used to store some of its excess packaging in case they did not have room in their warehouse. The property was originally purchased for $400,000 on 9/13/2012. The address for this property was 28 Newhall Way-Jacinto, TX 75011. On May 28, 2019, this property was exchanged with another, unrelated taxpayer, for another vacant lot that will also be used as a place to store excess packaging The fair market value of the 28 Newhall Way property at the time of the exchange was $800,000 The replacement property is located at 2333 Bolero Road - Waco, TX 76708. The fair market value of the Bolero Road property at the time of the exchange was $765,000. There were no expenses related to the exchange and the other party assumed the mortgage on the Newhall Way property (a $35,000 liability at the time of the exchange). Originally purchased for $250,000 and placed in service on 03/15/2008. Was fully deprecated for financial accounting and tax purposes prior to 2019. Sold for $47,000 on 4/3/19, but incurred $4,000 of commission expenses related to the sale. This was the only fixed asset for the corporation as of 12/31/18 other than the land. 6 Retained Earnings - Unappropriated! $7,319,668 12/31/2019 Year-End Balance Sheet Assets Cash: Inventory: Land: Stock in Jadis Corp. U.S. Treasury Stock State of Georgia Bonds Bolt Corp. Bonds City of Jacinto, TX Bonds Pre-Paid Federal Inc. Tax" New Copier Less: Accumulated Depreciation New Desk for Maggie (Cost)" Less: Accumulated Depreciation Fixed Assets (Personal Property) - Net Book Value $4,599,946 $3,430,490 $765,000 $60,000 $45,000 $84,900 $14,100 $30,000 $500,000 $30,000 ($1,500) $5,000 ($100) $33,400 (Cost) 12 14 All retained earnings are unappropriated. 11 2019 Federal estimated taxes were paid in 2019. They were paid in four installments as follows: $125,000 on 4/11/19; $125,000 on 6/14/19; $125,000 on 9/13/19 and $125,000 on 12/13/19. 12 Purchased and placed in service on 5/04/19. Daisy Music Village elects to take the maximum cost recovery on this asset in 2019 under IRC Sed 179, and if applicable, they do not elect out of first-year bonus depreciation. Purchased and placed in service on 7/4/19. Daisy Music Village does not elect to take any cost recovery on this asset in 2019 under IRC Sect 179. However, if applicable, they do not elect out of first-year bonus depreciation. 7 Liabilities None $0 Shareholders' Equity Common Stock $ 1,000,000 Retained Earnings - Unappropriated ?????? (The client was too busy to calculate this figure and they have asked you to complete this for them as a separate engagement from the preparation of the tax returns) Detailed Task 1) After completing the few items that Daisy Music Village was not able to provide to you in its prepared draft financial statements, using only the blank forms available at: www.IRS.gov, prepare Daisy Music Village's Federal income tax return (Form 1120) for the 2019 Tax Year - including the following schedules and forms (you must attach these forms in the required order as detailed by the IRS): Schedule D Form 1125-A Schedule G Form 1125-E Form 3800 Form 4562 Form 4797 Form 5884 Form 8824 Form 8949 Form 8994 The required portions of Schedule M-3 2) For any part of the tax return where a statement is required, you must attach a statement to the end of the tax retum as the last attachment to the 1120 return (before the information returns) - with a reference to what form and line of the return it applies to, as well as the name of the taxpayer and the EIN of the taxpayer on the top of each statement page. 8 3) Also, [THIS IS VERY IMPORTANT] prepare and include filing extension forms for BOTH Form 1120 AND for the 1099 forms (two 1099-MISC forms and two 1099 DIV forms) for the 2019 tax year (attach these extensions behind the 1120 form (and behind the forms/schedules attached to the 1120)). You will also need to prepare the two 1099-MISC forms and two 1099-DIV forms If an extension form has a required date field on the form, use the date that would have been the last day that the extension form would have been required to be filed 4) All of the repairs and maintenance services were performed to Daisy Music Village by another corporation (Repairs R Us, Inc. - 578 Culture Drive - Jacinto, TX 75011; EIN - 77-1581297; Phone (713) 555-5556. 5) The entertainment expenses were for tickets for the Houston Rockets NBA basketball team. Daisy Music Village took out its biggest clients and vendors to discuss business matters at all of the games. 6) In addition to signing the tax return as the paid preparer, for purposes of this project also actually sign the return as the taxpayer (keeping in mind you would not do this in real practice). 7) You do not need to prepare any payroll tax returns or forms (such as the W-2 or W-3) for the client (Maggie handles the payroll tax returns herself for the corporation). Other Important Items: 1) The landlord for the warehouse that Daisy Music Village rents is Kevin Lee. Kevin's address is 578 Jay Way, Menlo Park, CA 94025. His tax ID is 20-1484863 and his phone number is (650) 555-8888. 2) All of the amounts paid in 2019 for accounting services was paid to Jones and Miller, LLP. 3) Daisy Music Village Corporation is not a subsidiary in an affiliated group or a parent-subsidiary group. 9 4) Daisy Music Village Corp. purchased 6,000 shares in Jadis Corporation, a U.S.-based corporation that specializes in the management of junkyards on October 5, 2012 for $60,000. Jadis Corp. had 19,500 shares outstanding throughout 2019. On October 31, 2019, Daisy Music Village received a $204,000 dividend check from Jadis Corporation. Jadis Corporation's Employer Identification Number is 77-2573648. 5) The two shareholders in Daisy Music Village Inc. had the same ownership in the corporation throughout the year. 6) Daisy Music Village has an $10,000 NOL carryover into the 2019 tax year. 7) For Schedule K of Form 1120, you are given that the answers to question nos. 14, 17, 18, 19, 20, 21, 22, 23, 24 and 25 are "no" and the checkbox to no. 8 is to be unchecked. 8) Your client has asked you to file the return with the fewest number of required schedules filled-out on the 1120 form as legally possible. 9) $60,000 of cash distributions from Daisy Music Village Corp. were made in 2019. Each of the two shareholders received cash distributions based on their percentage ownership in the corporation. All cash distributions were paid on December 30, 2019. 10)On 10/15/2001, the corporation issued common stock to its two initial (and still current) shareholders with the two shareholders paying the following amounts for the stock: $780,000 for Kimberly and $220,000 for Don 11) If there is an amount due for the year on the 1120, the client (as a corporation) will need to pay the IRS electronically (i.e., not via check). However, for purposes of this tax retum project, if tax is due for the year you do not need to prepare any payment documentation - simply show the amount due on the appropriate line(s) of the 1120 tax return accordingly. 10 Also, if tax is due for the year, you do not need to calculate any penalties or interest - just the base tax due. On the other hand, if there is a refund due to the client on the 1120 tax return for the year, the client wants to receive the refund in the form of a check (i.e. they do not want any portion of the refund credited to next year's Federal income taxes). 12)All amounts contributed to charitable organizations for the year were made in cash, all of the charities were IRS-qualified charities, and the charities all provided the client with the required documentation in a timely manner. 13)All wages paid to shareholders are ordinary, necessary, and reasonable in amount, with none being disguised dividends. 14)All expenses - including wages paid to shareholders - are ordinary, necessary, and reasonable, with none being disguised dividends. 15)None of the entertainment expenses are lavish or extravagant. 16)None of the wages are includable in cost of goods sold. 17) All of the corporate bonds that were owned either at the beginning of the year or at the end of the year mature more than five years after the end of the 2019 tax year and the client did not expect to sell them or convert any of them into cash until they mature. The small sale of corporate bonds in 2019 was unexpected and it was not easy to sell these particular bonds as they were not readily traded on an exchange (they were not liquid assets that were readily convertible into cash). 18)For Schedule K of Form 1120, you are given that the answers to question nos. 14, 17, 18, 19, 20, 21, 22, 23, 24 and 25 are "No" and the checkbox to no. 8 is to be unchecked. 11 19)For Schedule J, you can skip lines 3; 5a; 5b; 5d; 5e; 9a-9f; 10; 12; 13; 15; 17; 18; 20a-20d; 21and 22. Any other parts that are applicable in Schedule J must be completed. For a non-skip line in Schedule J, you will need to determine if a figure goes on that line. There is a possibility that at least one non-skip line in Schedule J is still not applicable. If not applicable, simply put "O" for that line. 20) For Form 3800, you skip: all of Part I (but put down O for line 6); Lines 10a-c, 18-26 and 31-35 of Part II 21) Your client allows you to discuss its tax return with the IRS. 22) The client has never had its financial statements audited nor has it ever had to restate its financial statements. Final Project Notes: 1) VERY IMPORANT: Your group must e-mail an electronic copy of the project to me by the due date and time (at the beginning of class) either through Canvas or at: joel.busch@sjsu.edu 2) Please have the group member names included in the e-mailed submission. 3) VERY IMPORTANT - You are to only work on this project only with your fellow group members. 4) Late submissions (after the beginning of class on December 1, 2020) of the project are subject to a significant reduction of points. 5) A separate peer-review report must be completed for each team member by each team member and e-mailed to me by December 3. 12