Required:

$$ Complete Alvin$$s Music Inc.$$s $($AMI$)2022$ Form $1120$S$,$ Schedule K$,$ and Schedule K$-1($if applicable$)$ using the information provided below.

$$ Neither Form $4562$ for depreciation nor Form $4797$ for the sale of the equipment is required. Include the amount of tax depreciation and the tax gain on the equipment sale given in the problem $($or determined from information given in the problem$)$ on the appropriate lines on the first page of Form $1120$S$.$

$$ Forms $1125-$A and $1125-$E are not required.

$$ If any information is missing, use reasonable assumptions to fill in the gaps.

$$ The forms, schedules, and instructions can be found at the IRS website $($www$.$irs.gov$).$ The instructions can be helpful in completing the forms.

Facts:

Alvin$$s Music Inc. $($AMI$)$ was formed in $2012$ by Alvin Jones and Theona Smith. Alvin and Theona officially incorporated their store on June $12,2013.$ AMI sells $($retail$)$ all kinds of music$-$related products including musical instruments, sheet music, CDs$,$ and DVDs$.$ Alvin owns $60$ percent of the outstanding common stock of AMI and Theona owns the remaining $40$ percent.

$$ AMI is located at $355$ Music Way, East Palo Alto, California $94303.$

$$ AMI$$s Employer Identification Number is $29-5748859.$

$$ AMI$$s business activity is retail sales of music$-$related products. Its business activity code is $451140.$

$$ Officers of the corporation are as follows:

o Alvin is the chief executive officer and president $($Social Security number $123-45-6789).$

o Theona is the executive vice president $($Social Security number $978-65-4321).$

o Gwen Givens is the vice president over operations

o Carlson Bannister is the secretary

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

$$ Neither Gwen nor Carlson owns any stock in AMI.

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

$$ AMI made payments that require Form $1099$s$,$ and will file the Form $1099$s before the tax return is filed.

$$ AMI made four equal estimated tax payments of $$43,000$ each. Its tax liability last year was $$175,000.$ If it has overpaid its federal tax liability, AMI would like to receive a refund.

$$ AMI paid a dividend of $$80,000$ to its shareholders on December $1.$ AMI had sufficient earnings and profits $($E&P$)$ to cover the distribution.$$

The following is AMI$$s audited income statement for $2022$:

AMI Income Statement

For year ending December $31,2022$

Revenue from sales $ $3,420,000$

Sales returns and allowances $(40,000)$

Cost of goods sold $(834,000)$

Gross profit from operations $ $2,546,000$

Other income:

Capital gains $ $8,000$

Gain from disposition of fixed assets $2,000$

Dividend income $12,000$

Interest income $15,000$

Gross income $$2,583,000$

Expenses:

Compensation $$(1,300,000)$

Depreciation $(20,000)$

Bad debt expense $(15,000)$

Meals $(5,000)$

Maintenance $(7,000)$

Charitable donations $(27,000)$

Property taxes $(45,000)$

State income taxes $(60,000)$

Other taxes $(56,000)$

Interest $(62,000)$

Advertising $(44,000)$

Professional services $(32,000)$

Pension expense $(40,000)$

Supplies $(6,000)$

Other expenses $(38,000)$

Total expenses $(1,757,000)$

Income before taxes $826,000$

Federal income tax expense $(260,000)$

Net income after taxes $ $566,000$

Notes:

$1.$ AMI has a capital loss carryover to this year from last year in the amount of $$5,000.$

$2.$ AMI$$s inventory$-$related purchases during the year were $$1,134,000.$ AMI values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of $263$A do not apply to AMI.

$3.$ Of the $$15,000$ interest income, $$2,500$ was from a City of Fremont bond issued in $2019,$ $$3,500$ was from a Pleasanton city bond issued in $2020,$ $$3,000$ was from a U$.$S$.$ Treasury bond, and the remaining $$6,000$ was from a money market account.

$4.$ AMI sold equipment for $$10,000.$ It originally purchased the equipment for $$12,000$ and, through the date of the sale, had recorded a cumulative total of $$4,000$ of book depreciation on the asset and a cumulative total of $$6,000$ of tax depreciation. For tax purposes, the entire gain was recaptured as ordinary income under $1245.$

$5.$ AMI$$s dividend income came from Simon$$s Sheet Music. AMI owned $15,000$ shares of the stock in Simon$$s Sheet Music $($SSM$)$ at the beginning of the year. This represented $15$ percent of the SSM outstanding stock.

$6.$ On July $22,2022,$ AMI sold $2,500$ shares of its Simon$$s Sheet Music stock for $$33,000.$ It had originally purchased these shares on April $24,2016,$ for $$25,000.$ After the sale, AMI owned $12\mathrm{.}5$ percent of Simon$$s Sheet Music.

$7.$ AMI$$s compensation is as follows:

$$ Officers, $$600,000$

$$ Other, $$700,000$

$8.$ AMI wrote off $$10,000$ in accounts receivable as uncollectible during the year.

$9.$ Tax depreciation was $$31,000.$ None of the depreciation should be claimed on Form $1125$A$.$

$10.$ Of the $$62,000$ of interest expense, $$56,000$ was from the mortgage on AMI$$s building and the remaining $$6,000$