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Scuba View, Inc. Federal Tax Return Facts Scuba View, Inc. is owned by Marc C. Fisher and his wife, Sylvia A. Fisher. The corporation manufactures snorkel masks with built-in lighting systems used for general underwater lighting. When cut on a special way, the lights flash rapidly indicating an emergency situation (business activity code number 339900). The corporation has reported positive financial and taxable incomes since inception. The company is located at 150 Reef Road, Big Sur, California 93920. The company's employer identification number is 98-7654321, and the calendar year is used for tax purposes. The date of incorporation was March 14, 2010. Marc C. Fisher (social security number 111-11-1111) is an 80 percent shareholder and president of the company. Sylvia A. Fisher (social security number 123-45-6789) is a 20 percent shareholder and vice president of the company. Both persons devote 100 percent of their time to the corporation. Marc's compensation is $153,695 per year, and Sylvia's compensation is $85,387 per year. The corporation is not a personal holding company. While the corporation is a 'closely held C corporation,' it does not engage in activities to which the at-risk or passive activity loss limitations apply. The corporation files its tax return on the accrual method. Inventory has been consistently valued at cost under the FIFO method using the full absorption procedure. Inventory capitalization rules of Internal Revenue Code Section 263A do not apply due to the 'small business exception' (average annual gross receipts for the three preceding taxable years do not exceed $10 million). The accounting records are computerized. 1 The corporation's audited income statement and balance sheet for the current year, prepared by the accounting firm of Coral & Coral, CPAs, follow: SCUBA VIEW, INC. INCOME STATEMENT For the Year Ending December 31, Current Tax Year Revenue: Sales (net) .......................................... Cost of goods sold ................................. $6,859,819 (5,715,258) Gross profit ...................................................... $1,144,561 Operating expenses: Compensation of officers ......................... Other salaries and wages ............................. Rental expense ..................................... Interest expense .................................... Fines for improper disposal of waste ............ Advertising .......................................... Contributions ....................................... Bad debt expense ................................... Depreciation expense .............................. Taxes ................................................. Repairs and maintenance .......................... Miscellaneous expenses ........................... $ 239,082 525,921 36,033 91,165 2,903 9,187 38,425 3,416 117,755 82,825 7,696 20,794 Total operating expenses ....................................... Net Income from Operations ................................... $(1,175,202) $ (30,641) Other income and loss: Dividend income ................................... Interest income ..................................... Loss on sale of investment in stock ............. $ 114,150 2,497 (2,731) Net Income (Loss) before income tax ........................ 113,916 $ Income tax expense ...................................................... Net Income ....................................................... 2 83,275 (3,414) $ 79,861 SCUBA VIEW, INC STATEMENT OF FINANCIAL POSITION December 31, Current Tax Year Beginning of Year ASSETS End of Year Current Assets: Cash & Marketable Securities ................ $ 502,356 Accounts receivable ........................... 242,582 Allowance for Doubtful Accounts ......... (15,370) Inventory ........................................ 555,830 Total current assets ........................... $1,285,398 $ 487,595 273,727 (16,864) 672,888 $1,417,346 Machinery, Building, and Land: Machinery ....................................... $ 333,006 Less: Accumulated depreciation ............ (102,464) Building ......................................... 1,174,799 Less: Accumulated depreciation ........... (141,253) Land ............................................. 85,386 Total equipment, building, and land (net) $1,349,474 $ 380,397 (186,655) 1,174,799 (174,816) 85,386 $1,279,111 Other assets: Goodwill ........................................ -0Total Assets ................................... $2,634,872 24,977 $2,721,434 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable .............................. Notes payable (less than one year) .......... Total current liabilities ...................... Notes payable (one year or more) .................... Total Liabilities ................................ Common stock (20,000 shares authorized, 10,780 shares issued and outstanding, $10 par) .... Additional paid-in capital .............................. Retained earnings ....................................... Total Shareholders' Equity ................... Total Liabilities and Shareholders' Equity $ 218,930 175,895 $ 394,825 828,247 $1,223,072 $ 235,556 155,402 $ 390,958 890,899 $1,281,857 $ 107,800 916,836 387,164 $1,411,800 $2,634,872 $ 107,800 916,836 414,941 $1,439,577 $2,721,434 STATEMENT OF RETAINED EARNINGS Beginning Retained Earnings ........................ $387,164 Net income for the year ................................ 79,861 Dividends paid in cash ................................. (52,084) Ending Retained Earnings ............................. $414,941 3 NOTES 1. Scuba View, Inc. made estimated tax payments attributable to the current tax year in the amount of $5,123. The corporation also had a credit from an overpayment of its prior year Federal income taxes of $462 that it elected to apply against its current year tax liability. 2. All notes payable were issued at par and provide market interest rates. 3. Ignore state income taxes. 4. Dividend income is from the following sources: Apple Corp. (