On December 31, 2018, Jeff, John and James formed J3 Manufacturing Corp, a corporation created under the laws of the State of New York, for the principle purpose of manufacturing and distributing custom designed bikes. The company is authorized to issue 1000 shares of $1.00 par value common stock. Jeff, John, and James contributed the following property and each received 250 shares of $1.00 par value common stock. Jeff, John, and James elected themselves as officers of the J3 Mfg Corp and each received a salary of $150,000 for the tax year ending December 31, 2019. FMV Adj. Basis 1. Jeff * Building * Land *Mortgage (Debt) $2,000,000 325,000 530,000 $1,250,000 250,000 530,000 2. John * Inventory * Account Receivables * Accounts Payable * NYS Muni Bonds (4.5%, 06/30/2024) 750,000 855,000 125,000 315,000 500,000 600,000 125,000 300,000 3. James * Cash 795,000 * 36,500 shares JPM Chase (acq. 01/01/18) 1,000,000 795,000 460,000 The company adopted a calendar year and is an accrual basis taxpayer. For the tax year ending December 31, 2019, the company had the following activity: Sales Inventory purchases > Ending Inventory Dividend income from a 1% owned Company > Interest on investments Interest Income - Money Market > Officer's compensation Supplies Telephone expense Meals and Entertainment Employee salaries Marketing Travel $ 10,250,000 3,225,000 845,000 150,000 12,700 4,500 450,000 82,000 22,600 26,500 700,000 195,000 150,000 > Utilities Insurance Repairs & Maintenance Interest Expense Employment benefits Payroll taxes > Employee bonus accrual paid 3/16/2020 > Officer's Life Insurance > Purchased New Truck Purchased New Equipment > Made improvements to building Contribution to Cancer Research Foundation > Recorded a reserve for Bad Debts Bad debt right-off Book Depreciation: * Building Equipment * Truck * Improvements > Federal Income Tax (accrued) > State Income Tax (accrued) Book Income > Paid distribution to each shareholders on 12/15/2019 35,000 29,800 16,500 65,000 82,000 53,550 300,000 65,000 125,500 275,000 400,000 200,000 125,000 75,000 12,190 86,000 21,000 10,000 175,700 105,000 ????? 150,000 Miscellaneous: The company elected to take the maximum $179 on the new equipment. The three officers devote 100% of their time to the business. [EIN: 22-3658908]. The bonus accrual is not included in employee salaries. The stock in JP Morgan represents less than 1% of JP's outstanding stock. a. Prepare the 2019 corporate tax income return for J3 Manufacturing Corporation; b. Calculate earnings & profits and determine tax effect of distribution to shareholders. Assume E&P depreciation is the same as book depreciation; c. Prepare an excel worksheet showing J3's basis in assets contributed at December 31, 2018; d. Prepare an excel worksheet showing shareholder's basis in stock at December 31, 2018, and December 31, 2019. e. What would be the effect if the mortgage transferred to J3 by Jeff had been taken on the building on June 30, 2018, and Jeff used the money to buy and new car for personal use and personal residence? On December 31, 2018, Jeff, John and James formed J3 Manufacturing Corp, a corporation created under the laws of the State of New York, for the principle purpose of manufacturing and distributing custom designed bikes. The company is authorized to issue 1000 shares of $1.00 par value common stock. Jeff, John, and James contributed the following property and each received 250 shares of $1.00 par value common stock. Jeff, John, and James elected themselves as officers of the J3 Mfg Corp and each received a salary of $150,000 for the tax year ending December 31, 2019. FMV Adj. Basis 1. Jeff * Building * Land *Mortgage (Debt) $2,000,000 325,000 530,000 $1,250,000 250,000 530,000 2. John * Inventory * Account Receivables * Accounts Payable * NYS Muni Bonds (4.5%, 06/30/2024) 750,000 855,000 125,000 315,000 500,000 600,000 125,000 300,000 3. James * Cash 795,000 * 36,500 shares JPM Chase (acq. 01/01/18) 1,000,000 795,000 460,000 The company adopted a calendar year and is an accrual basis taxpayer. For the tax year ending December 31, 2019, the company had the following activity: Sales Inventory purchases > Ending Inventory Dividend income from a 1% owned Company > Interest on investments Interest Income - Money Market > Officer's compensation Supplies Telephone expense Meals and Entertainment Employee salaries Marketing Travel $ 10,250,000 3,225,000 845,000 150,000 12,700 4,500 450,000 82,000 22,600 26,500 700,000 195,000 150,000 > Utilities Insurance Repairs & Maintenance Interest Expense Employment benefits Payroll taxes > Employee bonus accrual paid 3/16/2020 > Officer's Life Insurance > Purchased New Truck Purchased New Equipment > Made improvements to building Contribution to Cancer Research Foundation > Recorded a reserve for Bad Debts Bad debt right-off Book Depreciation: * Building Equipment * Truck * Improvements > Federal Income Tax (accrued) > State Income Tax (accrued) Book Income > Paid distribution to each shareholders on 12/15/2019 35,000 29,800 16,500 65,000 82,000 53,550 300,000 65,000 125,500 275,000 400,000 200,000 125,000 75,000 12,190 86,000 21,000 10,000 175,700 105,000 ????? 150,000 Miscellaneous: The company elected to take the maximum $179 on the new equipment. The three officers devote 100% of their time to the business. [EIN: 22-3658908]. The bonus accrual is not included in employee salaries. The stock in JP Morgan represents less than 1% of JP's outstanding stock. a. Prepare the 2019 corporate tax income return for J3 Manufacturing Corporation; b. Calculate earnings & profits and determine tax effect of distribution to shareholders. Assume E&P depreciation is the same as book depreciation; c. Prepare an excel worksheet showing J3's basis in assets contributed at December 31, 2018; d. Prepare an excel worksheet showing shareholder's basis in stock at December 31, 2018, and December 31, 2019. e. What would be the effect if the mortgage transferred to J3 by Jeff had been taken on the building on June 30, 2018, and Jeff used the money to buy and new car for personal use and personal residence