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Corporation (Form 1120) Spring, 2019

Tom Smith, Ron Reynolds, and Jane Jenkins are owners in SRJ Consulting, Inc. a C corporation engaged in web application design. Pertinent information regarding SRJ Consulting is summarized below.

Social security numbers are as follows; Tom 468-89-0358; Ron 317-38-8497; and Jane 624-44-8765. Tom is the President of the company.

The address of the company is 4820 Mountain View Drive, Lynchburg, VA 24501.

The company was incorporated and began operations on January 1, 2015.

The business code is 561900. The federal identification number is 48-8765432

The company uses the cash method of accounting and the calendar year for reporting.

The company claimed $7,119 depreciation for book purposes, but $10,619 for tax purposes (under a MACRS methodology). Assume none of the depreciation creates a tax preference or adjustment for AMT purposes. The company is NOT a personal holding company.

All loan borrowings were used exclusively for acquisition of equipment, consequently, all interest is considered business interest.

Compensation was paid to each owner as indicated in the cash disbursements section. There was no distribution of any non-cash property.

The equipment loan is nonrecourse debt to the owners.

The 3 shareholders contributed their funds in exchange for common stock of the corporation in the following amounts: o Smith contributed $24,000 for 50% ownership interest o Reynolds contributed $14,400 for a 30% ownership interest o Jenkins contributed $9,600 for a 20% ownership interest

None of the shareholders sold any portion of their ownership interests during the year.

The shareholders were paid dividends from the profits of the company in 2018 as follows: o Smith - $45,000 o Reynolds - $27,000 o Jenkins - $18,000

The company has no available tax credits and is not subject to AMT.

The companys operations are entirely restricted to the local geographic area in Virginia. All owners are U.S. citizens. The company had no foreign operations, no foreign bank accounts, and no interest in any foreign trusts or other corporations. The company is not publicly traded.

The company is not subject to the consolidated audit procedures. The company files its return in Cincinnati, OH.

Tom Smith lives at 125 Sunset Ct., Lynchburg, VA 24502, Ron Reynolds lives at 285 Main St., Lynchburg, VA 24503; and Jane Jenkins lives at 881 Derby Ave., Lynchburg, VA 24501.

The companys marketable securities represent small investments (<1%) in a number of publicly traded companies and mutual funds.

The company sold its holdings of ABC Corporation (carried as Marketable Securities on the balance sheet) on August 10 for $5,000. The corporation purchased this investment several years ago for $9,000. (The proceeds from this sale are listed as a cash receipt below. The company has no prior-year capital gains or losses.)

The current income statement for the company reflected book net income of $107,900 AFTER book depreciation has been taken on the equipment, and the loss on the sale of ABC Corporation, and $32,000 of recorded federal income tax expense. The following information was taken from the corporations financial statements for the current year.

Cash Receipts:

Fees collected $746,000

Taxable qualified dividend income 3,400

Taxable business interest income 2,600

Tax Exempt interest income 1,600

Proceeds from sale of ABC Corp. common stock $ 5,000

Total Receipts $758,600

Cash Disbursements:

Compensation to Tom Smith $100,000

Compensation to Ron and Jane ($50K each) 100,000

Dividend payments to shareholders 90,000

Customer Refunds 8.000

Office Rent 28,000

Utilities 7,000

Administrative employee salaries 280,000

Federal income tax payments ($8K/Qtr.) 32,000

Business & Professional Licenses 2,000

Cash Contribution to United Way 2,000

Business Meals (while traveling) (100%) 2,600

Travel 7,500

Office supplies & expense 9,300

Accounting (Professional) fees 8,500

Advertising 5,000

Taxes (Payroll, State, Local) 31,500

Business interest (on equipment loan) 3,800

Principal payments on equipment loan 20,000

General Liability Insurance Expense 3,381

Equipment rental 4,000 Total Disbursements 744,581

Journal entries have been made to record regular (book) depreciation in the amount of $7,119. MACRS tax depreciation was not recorded in the financial book records.

Principle payments against the equipment loan amounted to $20,000 for the year. The balance sheets (book basis) for the company were as follows for the current year:

Account January 1, 2018 December 31, 2018

Cash $ 86,576 $ ?

Tax-exempt securities (at cost) $ 52,000 $52,000

Marketable Securities (at cost) $120,000 ?

Office furniture & equipment $65,000 $65,000

Accumulated Depreciation $( 36,576) ________?

Total Assets $ 287,000 $ ?

Nonrecourse Equipment Loan $ 47,000 $ ?

Common Stock $ 48,000 $ 48,000

Retained Earnings $ 192,000 $_______?

Total Liabilities and Equity $ 287,000 $ ?

REQUIRED:

1. Prepare a 2018 Form 1120 for the corporation including Form 4562. (Do NOT prepare a state return). Prepare supporting schedules as necessary if adequate information is provided. (Hint: If you use a tax software program, you may override the Form 4562 with asset and current and accumulated depreciation entries).