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CORPORATE TAX RETURN PROJECT CASE INFORMATION $$ AC$312$

General Information

Anna West and Zoe Waters each own one$-$half of the common stock of Lucky Penny Corporation

$($LPC$).$ LPC was incorporated on January $1,2022.$ It has only one class of stock outstanding and

operates as a C corporation for tax purposes. LPC provides accounting services to clients in and

around Parkville, Missouri.

Following is additional information related to LPC:

$$ Office Location: $123$ Park Ave, Parkville, MO $64152$

$$ Employer Identification Number:$11-2233444.$

$$ Business activity code: $541213$

$$ The shareholders are both US citizens and also work as officers for the corporation as follows:

o Anna is the chief executive officer and president $($Social Security number $111-22-3333)$

o Zoe is the chief financial officer and treasurer. $($Social Security number $222-33-4444).$

$$ All officers devote $100$ percent of their time to the business and all officers are U$.$S$.$ citizens.

Financial Information

Following is pertinent financial information related to LPC$$s financial activities in $2022$:

$$ LPC uses the accrual method of accounting and has a calendar year$-$end.

$$ LPC made four equal estimated tax payments of $$15,000$ each.

$$ LPC paid a dividend of $$50,000$ to its shareholders on December $15.$ LPC$$s dividend amount

was not in excess of its current and accumulated earnings and profits.

$$ Of the $$18,000$ in interest income, $$6,000$ was from a Platte County bond, $$1,000$ was from a

US treasury bond, and $$11,000$ was from a bank account.

$$ LPC owned $15,000$ shares of Accounting Unlimited, Inc.$$s $($AU$)$ stock at the beginning of the

year, which represented $15\%$ ownership. AU is a US $($domestic$)$ corporation. AU distributed a

$$10,000$ dividend to LPC on June $1.$

$$ On September $16,$ LPC sold $2,000$ shares of its AU stock for $$6,000.$ It had originally purchased

the shares on February $14$ for $$16,000.$ After the sale, LPC owned $13\%$ of AU$.$

$$ The officers$$ compensation was as follows: Anna, $$200,000$; and Zoe, $$180,000.$

$$ The stock option compensation is related to NQO stock options expensed during the year

$($recipients are officers$).$ The options have not been exercised.

$$ LPC wrote off $$3,000$ in accounts receivable as uncollectible during the year.

$$ The investment in bonds includes a $$8,000$ investment in US treasury bonds and $$43,000$

investment in local Platte County bonds.

$$ The fixed asset is office furniture that was placed in service on January $1$ with a useful life for

book purposes of $10$ years. LPC wants to take bonus depreciation on the assets for tax

purposes.

$$ The intangible asset is a customer list purchased from another accounting firm on January $1.$

The useful life for book purposes is $5$ years.

$$ The $$5,000$ interest expense was from a business loan.

$$ All meals were related to business.

Audited Financial Statements

Service revenue $$2,300,000$

Other income:

Dividend income $10,000$

Interest income $18,000$

Capital gains $($losses$)(10,000)$

Gross income $2,318,000$

Expenses:

Compensation $(1,500,000)$

Stock option compensation $(30,000)$

Rent expense $(210,000)$

Bad debt expense $(3,000)$

Meals $(32,000)$

Depreciation $(12,000)$

Amortization expense $(18,000)$

Payroll taxes $(200,000)$

State income taxes $(22,000)$

Interest expense $(5,000)$

Total expenses $(2,032,000)$

Income before taxes $286,000$

Federal income tax expense $(60,060)$

Net income after taxes $$225,940$

Lucky Penny Corporation

Income Statement

For year ending December $31,2022$

$01/01/2212/31/22$

Assets

Cash $$0$ $$98,990$

Accounts receivable $050,950$

Investment in bonds $051,000$

Investment in stock $040,000$

Fixed assets $0110,000$

Accumulated depreciation $0(10,000)$

Intangible assets $080,000$

Accumulated amortization $0(18,000)$

Other assets $014,000$

Total assets $$0$ $$416,940$

Liabilities and Shareholders' Equity

Accounts payable $044,000$

Other current liabilities $032,000$

Other liabilities $015,000$

Capital stock $0150,000$

Retained earnings $0175,940$

Total liabilities and shareholders' equity $$0$ $$416,940$

Lucky Penny Corporation

Balance Sheet

As of January $1,2022$ and December $31,2022$