PREPARE A 1120, SCHEDULE K, L AND J, M3, 1125A, 4562 AND ANY OTHER NECESSARY FORMS

WF! (12-1212666) is located at 1.3 Ismygpa Street, Albion Michigan, 49224. The company was incorporated on May 15, 1979. Their principal business code is 18000. WF! is currently a privately-held corporation with over 100 shareholders. One shareholder, the original founder and CEO, Dr. William T. Frankenfurter owns directly 50% of the voting stock. Dr. Frankenfurter (SSN 513-12-6789) lives at 1975 Time Warp Lane, Marshall, Michigan 49068. WF! does not own directly or indirectly any foreign entities nor is the firm owned by any outside foreign entities. WF! Management team includes Dr. Frankenfurter CEO, Janet Weiss CFO, Rock E. Horror, VP R&D, Brad Majors, VP Sales, and Richard (Riff) Raff, VP Operations.

WF! is an accrual method, calendar year taxpayer. Inventories are determined using the FIFO and the lower of cost or market method. All products are manufactured or assembled in the United States although some materials are outsourced from foreign countries. The firm uses the straight-line method of depreciation for book purposes and the MACRS tables for tax purposes and the firm uses the straight-line method of amortization of intangibles for both book and tax as allowed by law.

Below are the December 31, 2019 GAAP prepared financial statements (Income Statement and Balance Sheets) for your review.

You are required to prepare are necessary tax forms and supporting documents to file a complete 2019 tax return

WF! INC
Statement of income
For year ended Dec 31, 2019	(000's)
	2019
Net sales	$ 19,746
COGS	$ 13,196
GP	$ 6,550
Marketing, research and admin exp	$ 3,673
Other expenses	$ 104
Operating profit	$ 2,773
Interest income	$ 20
Interest exp	$ (243)
Income before income taxes	$ 2550
Provision for income taxes	$ (788)
Income before equity interests	$ 1,762
Share of net income from equity interests	$ 181
Net income	$ 1,943

WF Inc
Balance sheet
As of Dec 31, 2019 and 2018	(000's)		(000's)
	12/31/18		12/31/19
Current assets
Cash and cash equivalents	$ 798		$ 876
AR net	$ 2,566		$ 2,472
Note rec	$ -		$ 218
Inventories	$ 2,033		$ 2,373
Other current assets	$ 467		$ 389
Total current assets	$ 5864		$ 6328
Property , plant and equip net	$ 8,033		$ 8,356
Investment in equity companies	$ 355		$ 374
Goodwill	$ 3,275		$ 3404
Other intangibles	$ 310		$ 287
Other long term assests	$ 1,372		$ 1,115
Total assets	$ 19,209		$ 19,864
Current Liabilites
Current portion of LT debt	$ 610		$ 344
AP	$ 1,920		$ 2,206
Other current liabilites	$ 2,064		$ 1,909
Dividends payable	$ 250		$ 269
Warranty payable	$ 79		$ 610
Total current liabilities	$ 4,923		$ 5,338
Mortgage payable	$ 1,989		$ 1,810
Notes payable	$ 4,792		$ 5,120
Other long term liabilities	$ 1,815		$ 1,394
Total liabilities	$ 13,519		$ 13,662
Stockholders equity
Common stock	$ 598		$ 598
Additional paid in capital	$ 399		$ 425
Treasury stock	$ (4,087)		$ (4,726)
Retained earnings	$ 8,780		$ 9,905
Total liabilities and stockholders equity	$ 19,209		$ 19,864

1. Income Taxes (Federal) Only. The firm made four timely estimated tax payments during 2017: Q1 $200,000; Q2 $200,000; Q3 $200,000; and Q4 $250,000. Given recent employee turnover in the tax department, management estimated the Q3 and Q4 amounts and they admit they are not sure what the tax liability really is. Thats why they hired you! The difference in the provision in income tax $788,000 and the total of actual tax payments ($850,000) is a reflected as a component of $62,000 in the Other Current Assets section on the balance sheet.
2. Accounts Receivable. The AR balance is reported net on the balance sheet, meaning net of the Allowance for Doubtful Accounts. Below is a summary table for the Allowance account (000s).

Beginning Balance (CR ) DR.	($89)
2017 Bad Debts Expense Estimate	($197.5)
Partial or Totally Worthless Accounts	$346.5
Ending Balance	($80)

The firm uses a 1% estimate of 2019 Net Sales for bad debts expense. The $346,500 account write off amounts is composed of two items. In 2017 after serious negotiations and threatened lawsuits with a national retail toy store chain, $218,000 was reclassified as a Note Receivable to be paid in four installments beginning in March 2020. The remaining amount of $148,500 represents totally worthless amounts written off during the year.

3. Inventory and Cost of Goods Sold. Below is a summary table for firms inventory costs in 2019.

(000s)	Cost of Goods Sold	Ending Inventory
Direct Materials	$6,598	$1,187
Direct Labor	$2,242	$403
Overhead (excluding Depr.)	$3,363	$605
Depreciation (GAAP)	$993	$178
Totals	$13,196	$2,373

The MACRS (tax depreciation) amounts are $1,013 in Cost of Goods Sold and $198 in ending inventory. WF! sold 20,000 units @ $10/each. The manufacturing cost to make one unit $4.50. 25,000 units were produced in 2019 leaving 5,000 units unsold. The total labor costs charged for producing the product was $25,000.

4. Property, Plant and Equipment, (net). Book depreciation not included in the Cost of Goods section totaled $620,000. MACRS deduction for the same asset list is $696,790.
5. Intangibles, net and Goodwill. The finite intangible assets are amortized using the straight-line method for both book and tax. Amortization expense per books totaled $23,000. Goodwill increased by $129,000 in 2019 for a merger with Wreaking Crew Sound Studios Inc. (WCSSI) in Mobile Alabama. The merger was completed on October 1, 2019. WCSSI produces the sound cards for the Marvie and Millie the walking and talking millennial bears product line. For GAAP purposes, Goodwill was not impaired. For tax purposes, Goodwill should be amortized over 15 years using the straight line method. The tax amortization for the pre-2017 Goodwill should be $254,000.
6. Investment in Equity Companies. WF! owns over 20% but less than 50% of three toy supply companies in the United States. The firm can exert significant influence and therefore uses the equity method for financial reporting purposes. The firms net income from equity interests totaled $181,000 and the firm received dividends of $162,000. No impairment charges were required in 2019.
7. Warranty Liability. The firm accrued $625,000 in warranty expenses and paid $64,000 in warranty claims in 2019.
8. Other Current Liabilities. There is one item in other current liabilities accrued legal issues. The firm accrued $300,000 for this issue that will probably be resolved in 2019.
9. Long-term Debt. All long-term debt (mortgage payable, notes payable, etc.) are treated the same for book and tax purposes.
10. Stockholders Equity. Dividends paid in 2019 totaled $1,066,000.
11. Details of WF! Operating Expenses.

Details of marketing, research and admin expenses (000's)

research expenses	$ 217
advertising expenses	$ 298
Wages and benefits not reflected in COGS	$ 925
Charitable contributions	$ 160
travel and entertainment	$ 88
bad debts expense	$ 198
warranty Expense	$ 625
Repairs and maintenance	$ 87
professional fees	$ 432
Depreciation and amortization	$ 643
Total	$ 3,673

12. Travel & Entertainment Expenses includes $10,000 of speeding tickets, environmental fines, political contributions and bribes.
13. Management compensation listed in #11 above totaled $500,000.
    1. Dr. Frankenfurter CEO $150,000
    2. Janet Weiss CFO $100,000
    3. Rock E. Horror, VP R&D $100,000
    4. Brad Majors, VP Sales $75,000
    5. Richard (Riff) Raff, VP Operations $75,000.
14. Charitable Contributions. In 2019 the firm make $135,000 in cash donations to a variety of legitimate 501 c 3 organizations based upon employee recommendations. For the first time in company history the firm donated inventory to a childrens charity. The firm donated 2,000 units (bears) in October. The manufacturing cost per bear is $12.50 and normally sells for $30. The firm expensed the inventory gift at cost.
15. All interest income is taxable and all of the interest expense is tax-deductible.