S CORPORATION TAX RETURN PROBLEM Required: Using the information provided below, complete Salt Source Inc.s (SSI) 2013 Form 1120S. Also complete Kim Bentleys Schedule K-1. Form 4562 for depreciation is not required. Include the amount of tax depreciation given in the problem on the appropriate line on the first page of Form 1120S. If any information is missing, use reasonable assumptions to fill in the gaps. The forms, schedules, and instructions can be found at the IRS Web site (www.irs.gov). The instructions can be helpful in completing the forms. Facts: Salt Source Inc. (SSI) was formed as a corporation on January 5, 2013, by its two owners Kim Bentley and James Owens. SSI immediately elected to be taxed as an S corporation for federal income tax purposes. SSI sells salt to retailers throughout the Rocky Mountain region. Kim owns 70 percent of the SSI common stock (the only class of stock outstanding) and James owns 30 percent. SSI is located at 4200 West 400 North, Salt Lake City, UT 84116. SSIs Employer Identification Number is 87-5467544. SSIs business activity is wholesale sales. Its business activity code is 424990. Both shareholders work as employees of the corporation. Kim is the president of SSI (Social Security number 312-89-4567). Kims address is 1842 East 8400 South, Sandy, UT 84094. James is the vice president of SSI (Social Security number 321-98-7645). Jamess address is 2002 East 8145 South, Sandy, UT 84094. SSI uses the accrual method of accounting and has a calendar year-end. The following is SSIs 2013 income statement: SSI Income Statement For year ending December 31, 2013 Revenue from sales $980,000 Sales returns and allowances (10,000) Cost of goods sold (110,000) Gross profit from operations $860,000 Other income: Dividend income $ 15,000 Interest income 5,000 Gross income $880,000 Expenses: Compensation ($600,000) Depreciation (10,000) Bad debt expense (14,000) Meals and entertainment (2,000) Maintenance (8,000) Business interest (1,000) Property taxes (7,000) Charitable contributions (10,000) Other taxes (30,000) Rent (28,000) Advertising (14,000) Professional services (11,000) Employee benefits (12,000) Supplies (3,000) Other expenses (21,000) Total expenses (771,000) Net income $ 109,000 Notes: 1. SSIs purchases during 2013 were $115,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of 263A do not apply to SSI. 2. Of the $5,000 interest income, $2,000 was from a West Jordan city bond used to fund public activities (issued in 2007) and $3,000 was from a money market account. 3. SSIs dividend income comes from publicly traded stocks that SSI has owned for two years. 4. SSIs compensation is as follows: Kim $120,000 James $80,000 Other $400,000. 5. SSI wrote off $6,000 in accounts receivable as uncollectible during the year. 6. SSIs regular tax depreciation was $17,000. AMT depreciation was $13,000, Appendix C C-19 7. SSI distributed $60,000 to its shareholders. 8. SSI is not required to compute the amount in its accumulated adjustments account. The following are SSIs book balance sheets as of January 1, 2013, and December 31, 2013. 2013 January 1 December 31 Assets Cash $ 90,000 $143,000 Accounts receivable 300,000 310,000 Allowance for doubtful accounts (60,000) (68,000) Inventory 45,000 50,000 State and local bonds 38,000 38,000 Investments in stock 82,000 82,000 Fixed assets 100,000 100,000 Accumulated depreciation (20,000) (30,000) Other assets 20,000 21,000 Total assets $595,000 $646,000 Liabilities and Shareholders Equity Accounts payable 60,000 55,000 Other current liabilities 5,000 8,000 Other liabilities 10,000 14,000 Capital stock 200,000 200,000 Retained earnings 320,000 369,000 Total liabilities and shareholders equity $595,000 $646,000