Note: This problem is for the 2020 tax year.
On November 1, 2009, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows:
- Pet Kingdom's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211; and its e-mail address is petkingdom@pki.com.
- The employer identification number is 11-1111112, and the principal business activity code is 453910.
- Janet and Kim each own 50% of the common stock; Janet is president and Kim is vice president of the company. No other class of stock is authorized.
- Both Janet and Kim are full-time employees of Pet Kingdom. Janet's Social Security number is 123-45-6788, and Kim's Social Security number is 123-45-6787.
- Pet Kingdom is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. Pet Kingdom uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes.
- During 2020, the corporation distributed cash dividends of $250,000.
Pet Kingdom's financial statements for 2020 are shown below.
| Income Statement |
| Income | | | | | |
| Gross sales | | $5,750,000 |
| Sales returns and allowances | | (200,000) |
| Net sales | | $5,550,000 |
| Cost of goods sold | | (2,300,000) |
| Gross profit | | $3,250,000 |
| Dividends received from stock | | |
| investments in less-than-20%- owned U.S. corporations | | 43,750 |
| Interest income: | |
| State bonds | | $15,000 | |
| Certificates of deposit | | | 20,000 | | 35,000 |
| Total income | | $3,328,750 |
| Expenses | |
| Salariesofficers: | |
| Janet Morton | $262,500 | |
| Kim Wong | 262,500 | | $525,000 | |
| Salariesclerical and sales | | 725,000 | |
| Taxes (state, local, and payroll) | | 238,000 | |
| Repairs and maintenance | | 140,000 | |
| Interest expense: | |
| Loan to purchase state bonds | $9,000 | |
| Other business loans | 207,000 | | 216,000 | |
| Advertising | | 58,000 | |
| Rental expense | | 109,000 | |
| Depreciation* | | 106,000 | |
| Charitable contributions (cash) | | 38,000 | |
| Employee benefit programs | | 60,000 | |
| Premiums on term life insurance | | | |
| policies on lives of Janet Morton and Kim Wong; Pet Kingdom is the designated beneficiary | | 40,000 | |
| Total expenses | | (2,255,000) |
| Net income before taxes | | $1,073,750 |
| Federal income tax | | (221,734) |
| Net income per books | | $852,016 |
* Depreciation for tax purposes is $136,000. You are not provided enough detailed data to complete a Form 4562 (depreciation). If you solve this problem using Intuit ProConnect, enter the amount of depreciation on line 20 of Form 1120.
| Balance Sheet |
| Assets | January 1, 2020 | | December 31, 2020 |
| Cash | | $1,200,000 | | | | $1,039,461 | |
| Trade notes and accounts receivable | | 2,062,500 | | | | 2,147,000 | |
| Inventories | | 2,750,000 | | | | 3,030,000 | |
| Stock investment | | 1,125,000 | | | | 1,125,000 | |
| State bonds | | 375,000 | | | | 375,000 | |
| Certificates of deposit | | 400,000 | | | | 400,000 | |
| Prepaid Federal tax | | 0 | | | | 2,266 | |
| Buildings and other depreciable assets | | 5,455,000 | | | | 5,455,000 | |
| Accumulated depreciation | | (606,000) | | | | (712,000) | |
| Land | | 812,500 | | | | 812,500 | |
| Other assets | | 140,000 | | | | 128,500 | |
| Total assets | | $13,714,000 | | | | $13,802,727 | |
| |
| Liabilities and Equity | January 1, 2020 | | December 31, 2020 |
| Accounts payable | | $2,284,000 | | | | $1,840,711 | |
| Other current liabilities | | 175,000 | | | | 155,000 | |
| Mortgages | | 4,625,000 | | | | 4,575,000 | |
| Capital stock | | 2,500,000 | | | | 2,500,000 | |
| Retained earnings | | 4,130,000 | | | | 4,732,016 | |
| Total liabilities and equity | | $13,714,000 | | | | $13,802,727 | |
Required:
During 2020, Pet Kingdom made estimated tax payments of $56,000 each quarter to the IRS. Prepare Pet Kingdom's corporate tax return for tax year 2020 using Form 1120 (and any other appropriate forms and schedules).
- If an amount box does not require an entry or the answer is zero, enter "0".
- Enter all amounts as positive numbers, unless otherwise instructed.
- If required, round amounts to the nearest dollar.
- Make realistic assumptions about any missing data.
la Gross receipts or sales .. 1a 5,750,000 b Returns and allowances 1b Balance. Subtract line 1b from line 1a 1c 2 Cost of goods sold (attach Form 1125-A) 2 3 Gross profit. Subtract line 2 from line 1c.. 3 4 Dividends and inclusions (Schedule C, line 23) 4 5 Interest . 5 6 Gross rents 6 7 Gross royalties. 7 8 8 Capital gain net income (attach Schedule D (Form 1120)).. Net gain or (loss) from Form 4797, Part II, line 17 (attach Form 4797) 9 9 10 Other income (see instructions - attach statement) 10 11 Total income. Add lines 3 through 10.. 11 12 Compensation of officers (see instructions - attach Form 1125-E) 12 13 Salaries and wages (less employment credits) 13 14 Repairs and maintenance. 14 15 Bad debts 15 16 Rents 16 17 Taxes and licenses 17 18 Interest (see instructions) 18 19 Charitable contributions 19 AWADUE-ozn www LOG ----OZ OZ OWO 20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562). 20 21 Depletion .. 21 22 Advertising 22 D 23 UD 23 Pension, profit-sharing, etc., plans 23 Pension, profit-sharing, etc., plans 23 ZO--NC- AWO DUE-OZU 24 Employee benefit programs 24 25 Reserved for future use. 25 26 Other deductions (attach statement) 26 27 Total deductions. Add lines 12 through 26. 27 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11 28 29a Net operating loss deduction (see instructions) 29a b Special deductions (Schedule C, line 24) 29b c Add lines 29a and 29b 290 30 Taxable income. Subtract line 29c from line 28. See instructions 30 UOWO- 31 Total tax (Schedule ), Part I, line 11). 31 32 2020 net 965 tax liability paid (Schedule ), Part II, line 12). 32 33 Total payments, credits, and section 965 net tax liability (Schedule ), Part III, line 23) 33 -30 OZ) 34 Estimated tax penalty. See instructions. Check if Form 2220 is attached 34 35 Amount owed. If line 33 is smaller than the total of lines 31, 32, and 34, enter amount owed . 35 36 Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid 36 37 Enter amount from line 36 you want: Credited to 2021 estimated tax Refunded 37 Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Sign Here May the IRS discuss this return with the preparer shown below? See instructions. Yes No Signature of officer Date Title Print/Type preparer's name Date PTIN Paid Preparer's signature Self-Prepared Check if self- employed Preparer Use Only Firm's name Firm's EIN Firm's address Phone no. BAA For Paperwork Reduction Act Notice, see separate instructions. Form 1120 (2020) Form 1120 (2020) Pet Kingdom, Inc. 11-1111112 Page 2 Schedule C Dividends, Inclusions, and Special Deductions (see instructions) (a) Dividends and (b) Percentage (c) Special deductions inclusions (a) x (b) 1 50 Dividends from less-than-20%-owned domestic corporations (other than debt-financed stock).. Dividends from 20%-or-more-owned domestic corporations (other than debt-financed stock). 2 65 3 Dividends on certain debt-financed stock of domestic and foreign corporations See instructions 4 23.3 Dividends on certain preferred stock of less-than-20%-owned public utilities Dividends on certain preferred stock of 20%-or-more-owned public utilities 5 26.7 6 Dividends from less-than-20%-owned foreign corporations and certain FSCs 50 7 65 Dividends from 20%-or-more-owned foreign corporations and certain FSCS Dividends from wholly owned foreign subsidiaries 8 100 9 Subtotal. Add lines 1 through 8. See instructions for limitations. See instructions 10 Dividends from domestic corporations received by a small business investment company operating under the Small Business Investment Act of 1958 .. 100 11 Dividends from affiliated group members 100 12 Dividends from certain FSCs .. 100 100 13 Foreign-source portion of dividends received from a specified 10%-owned foreign corporation (excluding hybrid dividends) (see instructions). 14 Dividends from foreign corporations not included on line 3, 6, 7, 8, 11, 12, or 13 (including any hybrid dividends) See Section 965(a) inclusion 15 instructions 16a Subpart F inclusions derived from the sale by a controlled foreign corporation (CFC) of the stock of a lower-tier foreign corporation treated as a dividend (attach Form(s) 5471) (see instructions) 100 100 16a Subpart F inclusions derived from the sale by a controlled foreign corporation (CFC) of the stock of a lower-tier foreign corporation treated as a dividend (attach Form(s) 5471) (see instructions). b Subpart F inclusions derived from hybrid dividends of tiered corporations (attach Form(s) 5471) (see instructions).. c Other inclusions from CFCs under subpart F not included on line 15, 16a, 16b, or 17 (attach Form(s) 5471) (see instructions). 17 Global Intangible Low-Taxed Income (GILTI) (attach Form(s) 5471 and Form 8992). Gross-up for foreign taxes deemed paid . 18 19 IC-DISC and former DISC dividends not included on line 1, 2, or 3. 20 Other dividends ... 21 Deduction for dividends paid on certain preferred stock of public utilities ... 22 Section 250 deduction (attach Form 8993). 23 Total dividends and inclusions. Add column (a), lines 9 through 20. Enter here and on page 1, line 4.... 24 Total special deductions. Add column (c) lines 9 through 22. Enter here and on page 1, line 295 Form 1120 (2020) Form 1120 (2020) Pet Kingdom, Inc. 11-1111112 Page 3 Schedule ) Tax Computation and Payment (see instructions) Part I - Tax Computation 1 Check if the corporation is a member of a controlled group (attach Schedule O (Form 1120)). See instructions. 2 Income tax. See instructions 2 3 Base erosion minimum tax amount (attach Form 8991) 3 4 Add lines 2 and 3.. 4 5a 5a Foreign tax credit (attach Form 1118) b Credit from Form 8834 (see instructions) 5b c General business credit (attach Form 3800). 5c d Credit for prior year minimum tax (attach Form 8827). 5d e Bond credits from Form 8912. 5e 6 Total credits. Add lines 5a through 5e 6 7 Subtract line 6 from line 4.. 7 8 8 Personal holding company tax (attach Schedule PH (Form 1120)). 9a Recapture of investment credit (attach Form 4255) 9a b Recapture of low-income housing credit (attach Form 8611) 9b 9c 9d c Interest due under the look-back method completed long-term contracts (attach Form 8697).... d Interest due under the look-back method income forecast method (attach Form 8866) e Alternative tax on qualifying shipping activities (attach Form 8902) f Interest/tax due under Section 453A(C) and/or Section 453(1). g Other (see instructions - attach statement). 10 Total. Add lines 9a through 9g... 9e 9f 9g 10 11 Total tax. Add lines 7, 8, and 10. Enter here and on page 1, line 31 11 Part II - Section 965 Payments (see instructions) 12 2020 net 965 tax liability paid from Form 965-B, Part II, column (k), line 3. Enter here and on page 1, line 32 12 Part III - Payments and Refundable Credits, and Section 965 Net Tax Liability 13 2019 overpayment credited to 2020 13 14 2020 estimated tax payments. 14 15 2020 refund applied for on Form 4466 15 16 Combine lines 13, 14, and 15 .. 16 17 Tax deposited with Form 7004 17 18 Withholding (see instructions) 18 19 Total payments. Add lines 16, 17, and 18 19 20 Refundable credits from: a Form 2439 20a b Form 4136 20b c Reserved for future use 200 d Other (attach statement see instructions) 200 21 Total credits. Add lines 20a through 20d .. 21 22 22 2020 net 965 tax liability from Form 965-B, Part I, column (d), line 4. See instructions .. 23 Total payments, credits, and section 965 net tax liability. Add lines 19, 21, and 22. Enter here and on page 1, line 33 23 Form 1120 (2020) la Gross receipts or sales .. 1a 5,750,000 b Returns and allowances 1b Balance. Subtract line 1b from line 1a 1c 2 Cost of goods sold (attach Form 1125-A) 2 3 Gross profit. Subtract line 2 from line 1c.. 3 4 Dividends and inclusions (Schedule C, line 23) 4 5 Interest . 5 6 Gross rents 6 7 Gross royalties. 7 8 8 Capital gain net income (attach Schedule D (Form 1120)).. Net gain or (loss) from Form 4797, Part II, line 17 (attach Form 4797) 9 9 10 Other income (see instructions - attach statement) 10 11 Total income. Add lines 3 through 10.. 11 12 Compensation of officers (see instructions - attach Form 1125-E) 12 13 Salaries and wages (less employment credits) 13 14 Repairs and maintenance. 14 15 Bad debts 15 16 Rents 16 17 Taxes and licenses 17 18 Interest (see instructions) 18 19 Charitable contributions 19 AWADUE-ozn www LOG ----OZ OZ OWO 20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562). 20 21 Depletion .. 21 22 Advertising 22 D 23 UD 23 Pension, profit-sharing, etc., plans 23 Pension, profit-sharing, etc., plans 23 ZO--NC- AWO DUE-OZU 24 Employee benefit programs 24 25 Reserved for future use. 25 26 Other deductions (attach statement) 26 27 Total deductions. Add lines 12 through 26. 27 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11 28 29a Net operating loss deduction (see instructions) 29a b Special deductions (Schedule C, line 24) 29b c Add lines 29a and 29b 290 30 Taxable income. Subtract line 29c from line 28. See instructions 30 UOWO- 31 Total tax (Schedule ), Part I, line 11). 31 32 2020 net 965 tax liability paid (Schedule ), Part II, line 12). 32 33 Total payments, credits, and section 965 net tax liability (Schedule ), Part III, line 23) 33 -30 OZ) 34 Estimated tax penalty. See instructions. Check if Form 2220 is attached 34 35 Amount owed. If line 33 is smaller than the total of lines 31, 32, and 34, enter amount owed . 35 36 Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid 36 37 Enter amount from line 36 you want: Credited to 2021 estimated tax Refunded 37 Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Sign Here May the IRS discuss this return with the preparer shown below? See instructions. Yes No Signature of officer Date Title Print/Type preparer's name Date PTIN Paid Preparer's signature Self-Prepared Check if self- employed Preparer Use Only Firm's name Firm's EIN Firm's address Phone no. BAA For Paperwork Reduction Act Notice, see separate instructions. Form 1120 (2020) Form 1120 (2020) Pet Kingdom, Inc. 11-1111112 Page 2 Schedule C Dividends, Inclusions, and Special Deductions (see instructions) (a) Dividends and (b) Percentage (c) Special deductions inclusions (a) x (b) 1 50 Dividends from less-than-20%-owned domestic corporations (other than debt-financed stock).. Dividends from 20%-or-more-owned domestic corporations (other than debt-financed stock). 2 65 3 Dividends on certain debt-financed stock of domestic and foreign corporations See instructions 4 23.3 Dividends on certain preferred stock of less-than-20%-owned public utilities Dividends on certain preferred stock of 20%-or-more-owned public utilities 5 26.7 6 Dividends from less-than-20%-owned foreign corporations and certain FSCs 50 7 65 Dividends from 20%-or-more-owned foreign corporations and certain FSCS Dividends from wholly owned foreign subsidiaries 8 100 9 Subtotal. Add lines 1 through 8. See instructions for limitations. See instructions 10 Dividends from domestic corporations received by a small business investment company operating under the Small Business Investment Act of 1958 .. 100 11 Dividends from affiliated group members 100 12 Dividends from certain FSCs .. 100 100 13 Foreign-source portion of dividends received from a specified 10%-owned foreign corporation (excluding hybrid dividends) (see instructions). 14 Dividends from foreign corporations not included on line 3, 6, 7, 8, 11, 12, or 13 (including any hybrid dividends) See Section 965(a) inclusion 15 instructions 16a Subpart F inclusions derived from the sale by a controlled foreign corporation (CFC) of the stock of a lower-tier foreign corporation treated as a dividend (attach Form(s) 5471) (see instructions) 100 100 16a Subpart F inclusions derived from the sale by a controlled foreign corporation (CFC) of the stock of a lower-tier foreign corporation treated as a dividend (attach Form(s) 5471) (see instructions). b Subpart F inclusions derived from hybrid dividends of tiered corporations (attach Form(s) 5471) (see instructions).. c Other inclusions from CFCs under subpart F not included on line 15, 16a, 16b, or 17 (attach Form(s) 5471) (see instructions). 17 Global Intangible Low-Taxed Income (GILTI) (attach Form(s) 5471 and Form 8992). Gross-up for foreign taxes deemed paid . 18 19 IC-DISC and former DISC dividends not included on line 1, 2, or 3. 20 Other dividends ... 21 Deduction for dividends paid on certain preferred stock of public utilities ... 22 Section 250 deduction (attach Form 8993). 23 Total dividends and inclusions. Add column (a), lines 9 through 20. Enter here and on page 1, line 4.... 24 Total special deductions. Add column (c) lines 9 through 22. Enter here and on page 1, line 295 Form 1120 (2020) Form 1120 (2020) Pet Kingdom, Inc. 11-1111112 Page 3 Schedule ) Tax Computation and Payment (see instructions) Part I - Tax Computation 1 Check if the corporation is a member of a controlled group (attach Schedule O (Form 1120)). See instructions. 2 Income tax. See instructions 2 3 Base erosion minimum tax amount (attach Form 8991) 3 4 Add lines 2 and 3.. 4 5a 5a Foreign tax credit (attach Form 1118) b Credit from Form 8834 (see instructions) 5b c General business credit (attach Form 3800). 5c d Credit for prior year minimum tax (attach Form 8827). 5d e Bond credits from Form 8912. 5e 6 Total credits. Add lines 5a through 5e 6 7 Subtract line 6 from line 4.. 7 8 8 Personal holding company tax (attach Schedule PH (Form 1120)). 9a Recapture of investment credit (attach Form 4255) 9a b Recapture of low-income housing credit (attach Form 8611) 9b 9c 9d c Interest due under the look-back method completed long-term contracts (attach Form 8697).... d Interest due under the look-back method income forecast method (attach Form 8866) e Alternative tax on qualifying shipping activities (attach Form 8902) f Interest/tax due under Section 453A(C) and/or Section 453(1). g Other (see instructions - attach statement). 10 Total. Add lines 9a through 9g... 9e 9f 9g 10 11 Total tax. Add lines 7, 8, and 10. Enter here and on page 1, line 31 11 Part II - Section 965 Payments (see instructions) 12 2020 net 965 tax liability paid from Form 965-B, Part II, column (k), line 3. Enter here and on page 1, line 32 12 Part III - Payments and Refundable Credits, and Section 965 Net Tax Liability 13 2019 overpayment credited to 2020 13 14 2020 estimated tax payments. 14 15 2020 refund applied for on Form 4466 15 16 Combine lines 13, 14, and 15 .. 16 17 Tax deposited with Form 7004 17 18 Withholding (see instructions) 18 19 Total payments. Add lines 16, 17, and 18 19 20 Refundable credits from: a Form 2439 20a b Form 4136 20b c Reserved for future use 200 d Other (attach statement see instructions) 200 21 Total credits. Add lines 20a through 20d .. 21 22 22 2020 net 965 tax liability from Form 965-B, Part I, column (d), line 4. See instructions .. 23 Total payments, credits, and section 965 net tax liability. Add lines 19, 21, and 22. Enter here and on page 1, line 33 23 Form 1120 (2020)
