On March 1, 2014, Hayley Scott and Sam Smith formed Creative Art, Inc., to sell art and hobby supplies. Creative Art owns no affiliated subsidiary companies. Pertinent information regarding Creative Art, Inc., is summarized as follows Creative Art's business address is 1610 Cedar Street, Lansing, MI, 48910; its phone number is (517) 555-9678; and its email address is creativeart@upi.com. The employer identification number is 39-9999998, and the principal business activity code is 345678. Hayley and Sam each own 50% of the common stock; Hayley is president and Sam is vice president of the company. No other class of stock is authorized Both Hayley and Sam are full-time employees of Creative Art. Hayley's Social Security number is 123-45-6789, and Sam's Social Security number is 987-65-4321. Both are U.S. citizens. Creative Art is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. Creative Art uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes. During 2018, the corporation distributed cash dividends of $80,000, which were not in excess of the corporation's current and accumulated earnings and profits. Creative Art has a $90,000 charitable contribution carryforward available from 2014 . . . . Inventory purchases for 2018 totaled $2,750,000 . Creative Art has a ($31,500) capital loss carryforward available from 2015 . During 2018, Creative Art made estimated federal income tax payments of $195,000 each quarter to the IRS. Hayley and Sam request that any refund Creative Art may receive on its 2018 return be credited to its 2019 estimated tax. Creative Art was not required to file Schedule UTP, any Form 1099s, or any Forms 1042/1042-S for 2018 Creative Art's certified, audited financial statements for 2018 are shown below . Income Statement Income Income Statement Income Gross sales Sales returns and allowances Net sales Cost of goods sold Gross profit Dividend received from stock investment in 21%-owned $12,800,000 (1,300,000) $11,500,000 (4,025,000) $7,475,000 U.S. corporation, Hamilton Corporation, ID #39- 8765432 40,000 Dividend received from stock investment in 8%-owned 60,000 U.S. corporation, Beach Corporation, ID #39-1234567 Life insurance proceeds received upon death of covered 300,000 marketing executive Interest income: $50,000 16,500 $12,000 State of New York bonds French corporate bonds 66,500 Gain from sale of bond held for investment purposes for 6 Gain from sale of stock held for investment purposes for Total income months 35,000 47,000 18 months $7,988,500 Expenses Salaries-officers: Hayley Scott Sam Smith $175,000 175,000 $350,000 525,000 Salaries-clerical and sales Taxes: Payroll taxes $ 72,000 Salaries-clerical and sales Taxes: 525,000 $ 72,000 293,000 Payroll taxes State and local income and property taxes Repairs and maintenance Utility expense Interest expense: 365,000 210,000 130,000 $ 6,000 190,000 Loan to purchase New York bonds Other business loans Advertising Rental expense Fines paid to county government for improper disposal of 196,000 475,000 150,000 8,000 waste Current charitable contributions: $339,500 16,000 Cash Stock held for investment purposes for 3 years (on date of contribution: Basis $16,000; FMV $30,500; stock was sold by the qualified charity upon receipt) 355,500 Depreciation Premiums on term life insurance policies of Hayley Scott 590,000 22,000 Current charitable contributions: $339,500 16,000 Cash Stock held for investment purposes for 3 years (on date of contribution: Basis $16,000; FMV $30,500; stock was sold by the qualified charity upon receipt) 355,500 Depreciation Premiums on term life insurance policies of Hayley Scott 590,000 22,000 and Sam Smith; Creative Art is the designated beneficiary Employee benefit programs Qualified business meals (total) Business entertainment expense Qualified business travel expense Total expenses Net income before taxes Federal income tax expense Net income per books 235,000 26,000 15,000 86,000 (3,738,500) $4,250,000 (729,150 $3,520,850 Depreciation for tax purposes is $1,070,000. You are not provided enough detailed data to complete a Form 4562 (depreciation). If you solve this problem using tax software, enter the amount of depreciation on line 20 of Form 1120 Balance Sheet December 31, 2018 Assets Cash Trade notes and accounts receivable Inventories Stock investments State bonds Corporate bonds Buildings and other depreciable assets Accumulated depreciation Land January 1, 2018 $1,275,000 1,875,500 5,925,000 1,125,000 375,000 400,000 7,255,000 (2,350,000) 1,875,500 2,947,000 4,650,000 1,515,000 340,000 400,000 7,255,000 1,875,500 Total assets Liabilities and Equit Accounts payable Other current liabilities Mortgages (noncurrent) Common stock Retained earnings - unappropriated January 1, 2018 $4,250,000 1,175,000 6,525,000 2,500,000 3,306,000 December 31, 2018 $2,125,000 1,155,000 6,150,000 2,500,000 Total liabilities and equity Required: (50 points Complete all five pages of Form 1120 (except Schedule M-1), Form 1120 Schedule G, Form 1120 Schedule M-3, Form 1125-A, Form 1125-E, and Form 8916-A for Creative Art, Inc. Do NOT complete Schedule D. You can download the forms from the IRS website at http://www.irs.gov and complete the project by hand, or you can use any tax software program to complete the forms. You may complete the project individually or you may work with one other student. If you work with someone else, turn in only one project for the team, and place the names of the students who worked on the project on the first page of Form 1120. Additional information for completing Schedule M-3: Font Paragraph Styles Required: (50 points Complete all five pages of Form 1120 (except Schedule M-1), Form 1120 Schedule G, Form 1120 Schedule M-3, Form 1125-A, Form 1125-E, and Form 8916-A for Creative Art, Inc. Do NOT complete Schedule D. You can download the forms from the IRS website at http://www.irs.gov and complete the project by hand, or you can use any tax software program to complete the forms. You may complete the project individually or you may work with one other student. If you work with someone else, turn in only one project for the team, and place the names of the students who worked on the project on the first page of Form 1120. Additional information for completing Schedule M-3: 1. When completing Part Il of Schedule M-3: All income and expense items that have no book-tax differences are netted together and the resulting net amount is reported on both line 28(a) and line 28(d); there is no separate line to report either the income items or the expense items that have no book-tax differences. Line 26(a), line 27(a), and line 28(a) sum together to equal net income per books of $3,520,850 which is reported on both line 29(a) and line 30(a) Line 30(a) plus/minus the amounts on line 30(b) and line 30(c) should equal the amount reported on line 30(d), which is taxable income before NOL and special deductions reported on line 28 of page 1 of Form 1120. a. b. C. 2. Only show amounts for which there is a book-tax difference on lines 1-25 of Part Il of Schedule M-3 and lines 1-38 of Part III. For this project, most of the lines will be blank. If you report an amount on line 13 in Part II of Schedule M-3 and/or on line 8 in Part III of Schedule M-3, complete Form 8916-A (page 2) 3. On March 1, 2014, Hayley Scott and Sam Smith formed Creative Art, Inc., to sell art and hobby supplies. Creative Art owns no affiliated subsidiary companies. Pertinent information regarding Creative Art, Inc., is summarized as follows Creative Art's business address is 1610 Cedar Street, Lansing, MI, 48910; its phone number is (517) 555-9678; and its email address is creativeart@upi.com. The employer identification number is 39-9999998, and the principal business activity code is 345678. Hayley and Sam each own 50% of the common stock; Hayley is president and Sam is vice president of the company. No other class of stock is authorized Both Hayley and Sam are full-time employees of Creative Art. Hayley's Social Security number is 123-45-6789, and Sam's Social Security number is 987-65-4321. Both are U.S. citizens. Creative Art is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. Creative Art uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes. During 2018, the corporation distributed cash dividends of $80,000, which were not in excess of the corporation's current and accumulated earnings and profits. Creative Art has a $90,000 charitable contribution carryforward available from 2014 . . . . Inventory purchases for 2018 totaled $2,750,000 . Creative Art has a ($31,500) capital loss carryforward available from 2015 . During 2018, Creative Art made estimated federal income tax payments of $195,000 each quarter to the IRS. Hayley and Sam request that any refund Creative Art may receive on its 2018 return be credited to its 2019 estimated tax. Creative Art was not required to file Schedule UTP, any Form 1099s, or any Forms 1042/1042-S for 2018 Creative Art's certified, audited financial statements for 2018 are shown below . Income Statement Income Income Statement Income Gross sales Sales returns and allowances Net sales Cost of goods sold Gross profit Dividend received from stock investment in 21%-owned $12,800,000 (1,300,000) $11,500,000 (4,025,000) $7,475,000 U.S. corporation, Hamilton Corporation, ID #39- 8765432 40,000 Dividend received from stock investment in 8%-owned 60,000 U.S. corporation, Beach Corporation, ID #39-1234567 Life insurance proceeds received upon death of covered 300,000 marketing executive Interest income: $50,000 16,500 $12,000 State of New York bonds French corporate bonds 66,500 Gain from sale of bond held for investment purposes for 6 Gain from sale of stock held for investment purposes for Total income months 35,000 47,000 18 months $7,988,500 Expenses Salaries-officers: Hayley Scott Sam Smith $175,000 175,000 $350,000 525,000 Salaries-clerical and sales Taxes: Payroll taxes $ 72,000 Salaries-clerical and sales Taxes: 525,000 $ 72,000 293,000 Payroll taxes State and local income and property taxes Repairs and maintenance Utility expense Interest expense: 365,000 210,000 130,000 $ 6,000 190,000 Loan to purchase New York bonds Other business loans Advertising Rental expense Fines paid to county government for improper disposal of 196,000 475,000 150,000 8,000 waste Current charitable contributions: $339,500 16,000 Cash Stock held for investment purposes for 3 years (on date of contribution: Basis $16,000; FMV $30,500; stock was sold by the qualified charity upon receipt) 355,500 Depreciation Premiums on term life insurance policies of Hayley Scott 590,000 22,000 Current charitable contributions: $339,500 16,000 Cash Stock held for investment purposes for 3 years (on date of contribution: Basis $16,000; FMV $30,500; stock was sold by the qualified charity upon receipt) 355,500 Depreciation Premiums on term life insurance policies of Hayley Scott 590,000 22,000 and Sam Smith; Creative Art is the designated beneficiary Employee benefit programs Qualified business meals (total) Business entertainment expense Qualified business travel expense Total expenses Net income before taxes Federal income tax expense Net income per books 235,000 26,000 15,000 86,000 (3,738,500) $4,250,000 (729,150 $3,520,850 Depreciation for tax purposes is $1,070,000. You are not provided enough detailed data to complete a Form 4562 (depreciation). If you solve this problem using tax software, enter the amount of depreciation on line 20 of Form 1120 Balance Sheet December 31, 2018 Assets Cash Trade notes and accounts receivable Inventories Stock investments State bonds Corporate bonds Buildings and other depreciable assets Accumulated depreciation Land January 1, 2018 $1,275,000 1,875,500 5,925,000 1,125,000 375,000 400,000 7,255,000 (2,350,000) 1,875,500 2,947,000 4,650,000 1,515,000 340,000 400,000 7,255,000 1,875,500 Total assets Liabilities and Equit Accounts payable Other current liabilities Mortgages (noncurrent) Common stock Retained earnings - unappropriated January 1, 2018 $4,250,000 1,175,000 6,525,000 2,500,000 3,306,000 December 31, 2018 $2,125,000 1,155,000 6,150,000 2,500,000 Total liabilities and equity Required: (50 points Complete all five pages of Form 1120 (except Schedule M-1), Form 1120 Schedule G, Form 1120 Schedule M-3, Form 1125-A, Form 1125-E, and Form 8916-A for Creative Art, Inc. Do NOT complete Schedule D. You can download the forms from the IRS website at http://www.irs.gov and complete the project by hand, or you can use any tax software program to complete the forms. You may complete the project individually or you may work with one other student. If you work with someone else, turn in only one project for the team, and place the names of the students who worked on the project on the first page of Form 1120. Additional information for completing Schedule M-3: Font Paragraph Styles Required: (50 points Complete all five pages of Form 1120 (except Schedule M-1), Form 1120 Schedule G, Form 1120 Schedule M-3, Form 1125-A, Form 1125-E, and Form 8916-A for Creative Art, Inc. Do NOT complete Schedule D. You can download the forms from the IRS website at http://www.irs.gov and complete the project by hand, or you can use any tax software program to complete the forms. You may complete the project individually or you may work with one other student. If you work with someone else, turn in only one project for the team, and place the names of the students who worked on the project on the first page of Form 1120. Additional information for completing Schedule M-3: 1. When completing Part Il of Schedule M-3: All income and expense items that have no book-tax differences are netted together and the resulting net amount is reported on both line 28(a) and line 28(d); there is no separate line to report either the income items or the expense items that have no book-tax differences. Line 26(a), line 27(a), and line 28(a) sum together to equal net income per books of $3,520,850 which is reported on both line 29(a) and line 30(a) Line 30(a) plus/minus the amounts on line 30(b) and line 30(c) should equal the amount reported on line 30(d), which is taxable income before NOL and special deductions reported on line 28 of page 1 of Form 1120. a. b. C. 2. Only show amounts for which there is a book-tax difference on lines 1-25 of Part Il of Schedule M-3 and lines 1-38 of Part III. For this project, most of the lines will be blank. If you report an amount on line 13 in Part II of Schedule M-3 and/or on line 8 in Part III of Schedule M-3, complete Form 8916-A (page 2) 3