Required:
Form 1120
Form 1125-A
Form 1125-E
Form 4562
Tax Return Problem 8: C corporation Instructions: Please complete the 2018 Federal income tax return for Fun Fair of Ventura, Inc. based upon the facts presented below. If required information is missing, use reasonable assumptions to fill in the gaps. Fun Fair of Ventura, Inc. (FF) is organized as a corporation and is taxed as a "C" corporation with a calendar year-end. FF owns and operates an amusement park in Oxnard, California. Oxnard's weather allows FF to operate year-round. FF's address, employer identification number (EIN), and date of incorporation are as follows: Fun Fair of Ventura, Inc. 50 Boardwalk Oxnard, California 93030 EIN: 36-4385943 Date Incorporated: July 23, 2001 FF has been at the same address since inception. FF has only common shares issued (no preferred stock). FF is owned by 86 shareholders. The majority owner of FF is a large private equity firm based in San Jose, California called Amusement Ventures, LLC (AV). AV's address, employer identification, and other information are as follows: Amusement Ventures, LLC 675 Shady Wood Boulevard San Jose, California 95101 EIN: 54-8293213 AV is taxed as a partnership for federal tax purposes. AV is organized in California. It owns 30% of the voting stock of FF directly. No other person or entity owns directly 20% or more, or owns, directly or indirectly, more than 50% of the voting stock of FF. FF uses the accrual method of accounting. FF is not a subsidiary nor is it in an affiliated group with any other entity. FF is not audited by a CPA firm. It does, however, use GAAP-based financial statements. FF has never had a restatement of its income statement. FF reported the following information for 2018: FF did not pay dividends in excess of its current and accumulated earnings and profits. None of the stock of FF is owned by non-U.S. persons FF has never issued publicly offered debt instruments. FF is not required to file a Schedule UTP, Uncertain Tax Position Statement. FF made payments that required it to file federal Form(s) 1. 099. These Forms 1099 were filed timely by FF. FF's annual gross receipts for the prior three years are under $25,000,000. None of the shareholders of FF changed during the year. FF has never disposed of more than 65% (by value) of its assets in a taxable, non-taxable, or tax deferred transaction. FF did not receive any assets in a Section 351 transfer during the year. Additional information: On August 1, 2018 FF was notified by its legal counsel that FF was being sued by a former employee regarding her termination of employment from FF. On December 21, 2018, a legal settlement was reached with this terminated employee. As part of the settlement, FF agreed to pay the employee a settlement amount of $190,000 on January 10, 2019. FF accrued this expense on its 2018 financial statements. FF maintains a portfolio of tax-exempt securities (none of which is a private activity bond) and publicly-traded stocks as a measure to provide immediate liquidity if needed (none of these investments is debt financed).All of these securities originate from less than 20% owned domestic corporations FF owns 12% of Fun Fair of Russia (FFR), a Russian corporation operating a theme park on the outskirts of Moscow. FFR remitted dividends to FF of $14,000. FF also received $300 in dividends from holding marketable securities on occasion (all less than 20% owned by FF). From inception until this year the Rapid Coaster had been FF's main attraction. However due to safety, crowd appeal, and other factors, FF disposed of the Rapid Coaster on March 1, 2018 and purchased a new attraction known as the Vomit nator. The Rapid Coaster originally cost $2,000,000 and was placed in service on September 1, 2007. The Rapid Coaster was fully depreciated for book and tax purposes. The Vomitnator was installed and rendered operational on March 1, 2018. The Vomit nator cost $6,000,000 to acquire, install, and make ready for service. FF's regular tax depreciation for the year is correctly calculated as $1,112,499 before considering the 2018 addition of the Vomitnator. FF wants to claim the maximum allowable deduction for the Vominator in 2018. Because of the Vominator's modular design, it is considered personal (as opposed to real) property. FF officer information for the year is as follows (compensation amounts included in total wages on the income statement for all employees): Name Amount of compensation Marissa Hunt Social security Percent of time Percent of stock number devoted to owned business 435-54-2342 100% .05% 243-98-3242 100% .03% 194-23-7435 100% 623-53-3920 100% Dakan Williams $235,000 $195,000 $165,000 Deon Johnson Jennifer Conley 0% $150.000 Near the end of the year, FF switched its property and casualty insurance company. As a result, the plan year for its insurance contract was altered. On December 31, 2018 FF prepaid insurance premiums of $25,000 representing coverage through February 15, 2019 as a condition of being accepted by the new company. FF did not expense any of the prepayment for financial accounting purposes. FF rents from vendors several pieces of equipment to use in its business. As of December 31, 2017 and December 31, 2018, respectively, FF had prepaid vendors for equipment rental of $30,000 for January 2018 and $35,000 for January 2019. On December 26, 2018 FF prepaid a contractor $17,500 to repair several pieces of maintenance shop equipment in January of 2019. FF fully expects that the contractor will have completed the project by January 31, 2019. All the accrued wages and bonus amounts on the financial statements as of December 31, 2017 were paid on February 28, 2018. As of December 31, 2017 and 2018, respectively, FF had vacation accruals on its books of $29,000 and $35,000. As of March 15, 2018 and 2019, respectively, FF had paid $5,000 and $8,000 of those accrued amounts. On December 2, 2018, the millionth customer entered the park. To recognize the accomplishment and to promote the amusement park through print and radio media advertisements, FF held a give-away contest wherein the lucky customer deemed to be the millionth customer would be given $100,000. The check was presented to the lucky winner on January 15, 2019. The land on which FF resides is owned by the county. FF has a very favorable lease with the county that allows FF the ability to sublease any portion of the ground to another tenant. The board of directors of FF made the decision in the fall of 2018 to seek out a tenant for unimproved land that would not be utilized in any potential expansion plans. FF identified the potential renter and entered into a contract with the renter on December 1, 2018. The rent period is to begin on January 1, 2019; however, as part of the contract, the renter was required to pay a full six-month rental amount ($50,000) to FF by December 31, 2018. FF received a check of $50,000 on December 27, 2018 from the renter. This rental payment is not refundable to the renter under any circumstances. FF maintains an inventory of several items that it uses in its amusement park. Inventory is valued at cost. FF has never has never changed it inventory method. FF uses specific identification for its inventory. FF has never written down any subnormal goods. The rules of Section 263A (Unicap) apply to FF. The Unicap calculated costs related to ending inventory at December 31, 2017 and 2018, respectively, were $15,000 and $19,000. Total current year 263A costs were $22,610, with $18,610 included in COGS during 2018. FF does not include any of its salary and wage expenses as labor costs for COGS. On December 1, 2018, FF paid a $400,000 (total) dividend to all common stockholders. During the year, FF made Federal estimated income tax payments of $72,500 each on April 15, June 15. September 15 and December 15 of 2018 ($290,000 in total). If FF has overpaid its current year estimated taxes, it would like to apply the excess to its estimated tax payments for next year. FF is NOT a "large corporation." FF's 2017tax liability was $200,000. FF made California state estimated income tax payments of $15,000 each on April 15, June 15, September 15 and December 15 of 2018 ($60,000 in total). Exhibit A and B for Fun Fair's Financial Statements. Exhibit A Fun Fair of Ventura Income Statement For the period ending December 31, 2018 Income: Gross Sales 26,523,275 Less Returns 113,500 Net Sales 26,409,775 Cost of Goods Sold 2,052,500 Gross Income 24,357,2751 Dividend Income 14,300 2,650 Interest Income Municipal Income 2,300 Total Other Income 19,250 24,376,525 Total Income Expenses: Employee Salaries 13,905,600 Repairs & Maintenance 492,350 Bad Debts 58,000 Rent 1,543,000 Payroll Taxes 1,112,400 Licensing Fees 10,750 Property Taxes 277,000 Interest Expense 781,000 Depreciation 1,350,000 Office Supplies 33,950 Employee Training Safety Expenses Political Contributions 53,750 31,000 2,500 5,000 CA Safety Commission Fine Advertising Admission Supplies 290,500 143,250 Fun Fair of Ventura Income Statement For the period ending in December 31, 2018 Meals and Entertainment 8,500 Travel 13,550 Insurance 215,000 Legal Settlement 190,000 100,000 Fuel 158,675 Utilities 2,530,500 135,250 Telephone Total Expenses 23,441,525 935,000 Total Net income before taxes Federal Income Tax 290,000 60,000 State Income Tax Total Tax Provision 350,000 Net Income 585,000 Exhibit B Fun Fair of Ventura Balance Sheet December 31, 2018 Assets: Cash 12/31/2018 129,000 75,000 (49,000) Accounts Receivable 12/31/2017 165,000 128,000 (43,000) 422,000 150,000 200,000 24,000,000 Less Allowance for Bad Debts Inventory Tax Exempt Securities Publicly Traded Stocks Fixed Asset 390,000 150,000 200,000 28,000,000 Less: Accumulated Depreciation (13,542,000) (12,892,000) Prepaid Insurance 25,000 Prepaid Rent 30,000 35,000 Prepaid Installation Contract 17,500 Other Assets 150,000 250,000 Total Assets 11,660,000 16,330,500 Liabilities & ShareholdersEquity Accounts Payable 62,000 Accrued Wages 48,000 123,000 68,500 118,000 Accrued Bonuses Accrued Vacation 29,000 Legal Settlement Accrual Prize Accrual 39,000 35,000 190,000 100,000 50,000 1,084,000 11,728,000 Unearned Rental Income 1,540,000 Note Payable (First Bank of CA) Note Payable Equipm-ent Leasing Co. 7,112,000 Capital Stock 100,000 100,000 Fun Fair of Ventura Balance Sheet Additional Paid-in Capital Retained Earnings Total Liabilities & Shareholders Equity 2,000,000 2,000,000 639,500 824,500 11,660,000 16,330,500 Tax Return Problem 8: C corporation Instructions: Please complete the 2018 Federal income tax return for Fun Fair of Ventura, Inc. based upon the facts presented below. If required information is missing, use reasonable assumptions to fill in the gaps. Fun Fair of Ventura, Inc. (FF) is organized as a corporation and is taxed as a "C" corporation with a calendar year-end. FF owns and operates an amusement park in Oxnard, California. Oxnard's weather allows FF to operate year-round. FF's address, employer identification number (EIN), and date of incorporation are as follows: Fun Fair of Ventura, Inc. 50 Boardwalk Oxnard, California 93030 EIN: 36-4385943 Date Incorporated: July 23, 2001 FF has been at the same address since inception. FF has only common shares issued (no preferred stock). FF is owned by 86 shareholders. The majority owner of FF is a large private equity firm based in San Jose, California called Amusement Ventures, LLC (AV). AV's address, employer identification, and other information are as follows: Amusement Ventures, LLC 675 Shady Wood Boulevard San Jose, California 95101 EIN: 54-8293213 AV is taxed as a partnership for federal tax purposes. AV is organized in California. It owns 30% of the voting stock of FF directly. No other person or entity owns directly 20% or more, or owns, directly or indirectly, more than 50% of the voting stock of FF. FF uses the accrual method of accounting. FF is not a subsidiary nor is it in an affiliated group with any other entity. FF is not audited by a CPA firm. It does, however, use GAAP-based financial statements. FF has never had a restatement of its income statement. FF reported the following information for 2018: FF did not pay dividends in excess of its current and accumulated earnings and profits. None of the stock of FF is owned by non-U.S. persons FF has never issued publicly offered debt instruments. FF is not required to file a Schedule UTP, Uncertain Tax Position Statement. FF made payments that required it to file federal Form(s) 1. 099. These Forms 1099 were filed timely by FF. FF's annual gross receipts for the prior three years are under $25,000,000. None of the shareholders of FF changed during the year. FF has never disposed of more than 65% (by value) of its assets in a taxable, non-taxable, or tax deferred transaction. FF did not receive any assets in a Section 351 transfer during the year. Additional information: On August 1, 2018 FF was notified by its legal counsel that FF was being sued by a former employee regarding her termination of employment from FF. On December 21, 2018, a legal settlement was reached with this terminated employee. As part of the settlement, FF agreed to pay the employee a settlement amount of $190,000 on January 10, 2019. FF accrued this expense on its 2018 financial statements. FF maintains a portfolio of tax-exempt securities (none of which is a private activity bond) and publicly-traded stocks as a measure to provide immediate liquidity if needed (none of these investments is debt financed).All of these securities originate from less than 20% owned domestic corporations FF owns 12% of Fun Fair of Russia (FFR), a Russian corporation operating a theme park on the outskirts of Moscow. FFR remitted dividends to FF of $14,000. FF also received $300 in dividends from holding marketable securities on occasion (all less than 20% owned by FF). From inception until this year the Rapid Coaster had been FF's main attraction. However due to safety, crowd appeal, and other factors, FF disposed of the Rapid Coaster on March 1, 2018 and purchased a new attraction known as the Vomit nator. The Rapid Coaster originally cost $2,000,000 and was placed in service on September 1, 2007. The Rapid Coaster was fully depreciated for book and tax purposes. The Vomitnator was installed and rendered operational on March 1, 2018. The Vomit nator cost $6,000,000 to acquire, install, and make ready for service. FF's regular tax depreciation for the year is correctly calculated as $1,112,499 before considering the 2018 addition of the Vomitnator. FF wants to claim the maximum allowable deduction for the Vominator in 2018. Because of the Vominator's modular design, it is considered personal (as opposed to real) property. FF officer information for the year is as follows (compensation amounts included in total wages on the income statement for all employees): Name Amount of compensation Marissa Hunt Social security Percent of time Percent of stock number devoted to owned business 435-54-2342 100% .05% 243-98-3242 100% .03% 194-23-7435 100% 623-53-3920 100% Dakan Williams $235,000 $195,000 $165,000 Deon Johnson Jennifer Conley 0% $150.000 Near the end of the year, FF switched its property and casualty insurance company. As a result, the plan year for its insurance contract was altered. On December 31, 2018 FF prepaid insurance premiums of $25,000 representing coverage through February 15, 2019 as a condition of being accepted by the new company. FF did not expense any of the prepayment for financial accounting purposes. FF rents from vendors several pieces of equipment to use in its business. As of December 31, 2017 and December 31, 2018, respectively, FF had prepaid vendors for equipment rental of $30,000 for January 2018 and $35,000 for January 2019. On December 26, 2018 FF prepaid a contractor $17,500 to repair several pieces of maintenance shop equipment in January of 2019. FF fully expects that the contractor will have completed the project by January 31, 2019. All the accrued wages and bonus amounts on the financial statements as of December 31, 2017 were paid on February 28, 2018. As of December 31, 2017 and 2018, respectively, FF had vacation accruals on its books of $29,000 and $35,000. As of March 15, 2018 and 2019, respectively, FF had paid $5,000 and $8,000 of those accrued amounts. On December 2, 2018, the millionth customer entered the park. To recognize the accomplishment and to promote the amusement park through print and radio media advertisements, FF held a give-away contest wherein the lucky customer deemed to be the millionth customer would be given $100,000. The check was presented to the lucky winner on January 15, 2019. The land on which FF resides is owned by the county. FF has a very favorable lease with the county that allows FF the ability to sublease any portion of the ground to another tenant. The board of directors of FF made the decision in the fall of 2018 to seek out a tenant for unimproved land that would not be utilized in any potential expansion plans. FF identified the potential renter and entered into a contract with the renter on December 1, 2018. The rent period is to begin on January 1, 2019; however, as part of the contract, the renter was required to pay a full six-month rental amount ($50,000) to FF by December 31, 2018. FF received a check of $50,000 on December 27, 2018 from the renter. This rental payment is not refundable to the renter under any circumstances. FF maintains an inventory of several items that it uses in its amusement park. Inventory is valued at cost. FF has never has never changed it inventory method. FF uses specific identification for its inventory. FF has never written down any subnormal goods. The rules of Section 263A (Unicap) apply to FF. The Unicap calculated costs related to ending inventory at December 31, 2017 and 2018, respectively, were $15,000 and $19,000. Total current year 263A costs were $22,610, with $18,610 included in COGS during 2018. FF does not include any of its salary and wage expenses as labor costs for COGS. On December 1, 2018, FF paid a $400,000 (total) dividend to all common stockholders. During the year, FF made Federal estimated income tax payments of $72,500 each on April 15, June 15. September 15 and December 15 of 2018 ($290,000 in total). If FF has overpaid its current year estimated taxes, it would like to apply the excess to its estimated tax payments for next year. FF is NOT a "large corporation." FF's 2017tax liability was $200,000. FF made California state estimated income tax payments of $15,000 each on April 15, June 15, September 15 and December 15 of 2018 ($60,000 in total). Exhibit A and B for Fun Fair's Financial Statements. Exhibit A Fun Fair of Ventura Income Statement For the period ending December 31, 2018 Income: Gross Sales 26,523,275 Less Returns 113,500 Net Sales 26,409,775 Cost of Goods Sold 2,052,500 Gross Income 24,357,2751 Dividend Income 14,300 2,650 Interest Income Municipal Income 2,300 Total Other Income 19,250 24,376,525 Total Income Expenses: Employee Salaries 13,905,600 Repairs & Maintenance 492,350 Bad Debts 58,000 Rent 1,543,000 Payroll Taxes 1,112,400 Licensing Fees 10,750 Property Taxes 277,000 Interest Expense 781,000 Depreciation 1,350,000 Office Supplies 33,950 Employee Training Safety Expenses Political Contributions 53,750 31,000 2,500 5,000 CA Safety Commission Fine Advertising Admission Supplies 290,500 143,250 Fun Fair of Ventura Income Statement For the period ending in December 31, 2018 Meals and Entertainment 8,500 Travel 13,550 Insurance 215,000 Legal Settlement 190,000 100,000 Fuel 158,675 Utilities 2,530,500 135,250 Telephone Total Expenses 23,441,525 935,000 Total Net income before taxes Federal Income Tax 290,000 60,000 State Income Tax Total Tax Provision 350,000 Net Income 585,000 Exhibit B Fun Fair of Ventura Balance Sheet December 31, 2018 Assets: Cash 12/31/2018 129,000 75,000 (49,000) Accounts Receivable 12/31/2017 165,000 128,000 (43,000) 422,000 150,000 200,000 24,000,000 Less Allowance for Bad Debts Inventory Tax Exempt Securities Publicly Traded Stocks Fixed Asset 390,000 150,000 200,000 28,000,000 Less: Accumulated Depreciation (13,542,000) (12,892,000) Prepaid Insurance 25,000 Prepaid Rent 30,000 35,000 Prepaid Installation Contract 17,500 Other Assets 150,000 250,000 Total Assets 11,660,000 16,330,500 Liabilities & ShareholdersEquity Accounts Payable 62,000 Accrued Wages 48,000 123,000 68,500 118,000 Accrued Bonuses Accrued Vacation 29,000 Legal Settlement Accrual Prize Accrual 39,000 35,000 190,000 100,000 50,000 1,084,000 11,728,000 Unearned Rental Income 1,540,000 Note Payable (First Bank of CA) Note Payable Equipm-ent Leasing Co. 7,112,000 Capital Stock 100,000 100,000 Fun Fair of Ventura Balance Sheet Additional Paid-in Capital Retained Earnings Total Liabilities & Shareholders Equity 2,000,000 2,000,000 639,500 824,500 11,660,000 16,330,500
