S Corporation Tax Return Problem

Required:

-Using the information provided below, complete Salt Source Inc.'s (SSI) 2014 Form 1120S. Also complete Kim Bentley's 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.

Facts: Salt Source Inc. (SSI) was formed as a corporation on January 5, 2011, 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. SSI's Employer Identification Number is 87-5467544. SSI's 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). Kim's address is 1842 East 8400 South, Sandy, UT 84094. James is the vice president of SSI (Social Security number 321-98-7645). James's address is 2002 East 8145 South, Sandy, UT 84094. SSI uses the accrual method of accounting and has a calendar year-end Other Assets on the balance sheet consist entirely of Prepaid Advertising Expense of $20,000 at the beginning of the year and $21,000 at year end. The prepayments consist of January and February advertising for the subsequent year. SSI has consistently deducted such prepayments for tax purposes Other Current Liabilities ($5000 at the beginning of the year and $8000 at year end) consist of accrued December rent for each year. The rent payment to the landlord, Kim Bentley, is due (and is, in fact, paid) on the first business day of the subsequent year, e.g., Jan 2. At the beginning of the year (1/1/13), Other Liabilities consisted of accrued bonuses to regular employees of $10,000. Those bonuses were paid on 3/15/13. At year end (12/31/13), the $14,000 of Other Liabilities consists of $10,000 of bonuses accrued to regular employees and $4000 accrued bonus to James Owens. All bonuses were paid on 3/15/14). The following is SSI's 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: SSI's 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. 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. SSI's dividend income comes from publicly traded stocks that SSI has owned for two years. SSI's compensation is as follows: Kim $120,000 James $80,000 Other $400,000. SSI wrote off $6,000 in accounts receivable as uncollectible during the year. SSI's regular tax depreciation was $17,000. AMT depreciation was $13,000. SSI distributed $60,000 to its shareholders. SSI is not required to compute the amount in its accumulated adjustments account. The following are SSI's 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