Tax Return Data Gayle Corporation is a calendar year taxpayer that was formed on March 31, 2019. It was incorporated as a C corporation in the state of Washington. It is an accrual method taxpayer. Its primary industry is broadcast communications. Its corporate office is located at 8562 Seaway Boulevard, Seattle, WA 98123, phone number (206) 867-5555. Gayle Corporation is not part of a consolidated group for U.S. tax purposes, and it is not a personal holding corporation or personal services corporation. As part of this exercise, Gayle Corporation will need to apply for an Employer Identification Number (EIN). Gayle Corporation's shareholders were as follows at formation: 1) Monty Gautier, SSN 222-222-3333 Address: 5076 17th Avenue, Seattle, WA 98122. Received 20,000 shares of Gayle Co. common stock in exchange for performing services valued at $20,000. 2) Aggie Swenson, SSN LIT-111-2222 Address: 998 Large Avenue, Seattle, WA 98176. Contributed TV equipment (FMV $20,000, adjusted basis $5,000, purchased for $12,000 on February 1, 2016. Asset #1 in book depreciation schedule) in exchange for 20,000 shares of Gayle Co. common stock. 3) Moss Corporation, EIN 867-530-9555 Address: 223 Avenue Louise, Brussels, Belgium 1004 Contributed a building (FMV $60,000, adjusted basis $20,000, purchased for $30,000 on January 1, 2010. Asset #2 in book depreciation schedule) in exchange for 51,000 shares of Gayle Co. common stock and a Gayle Co. note of $9,000. 4) Carolina McLean, SSN 999-999-8765 Address: 327 Andre Reynolds Drive, Lisbon, Portugal Contributed recording equipment (FMV $9,000 adjusted basis $15,000, purchased for $12,000 on November 1, 2017. Asset #3 in book depreciation schedule) in exchange for 9,000 shares of Gayle Co. common stock. At formation, total shares issued and outstanding: 100,000 shares of common stock. During 2019, the following events occurred: 1) Gayle Corporation received dividends as follows: a. June 1, 2019 - $65,000 from Alphabet Inc, a company in which Gayle Co. owns a 10% interest. b. September 1, 2019 - $100,000 from South Seattle Corp., a company in which Gayle Co. owns a 75% interest. 2) Gayle Corporation made estimated tax payments of $100,000. 3) Gayle Corporation capitalized the contributed services from Monty Gautier and fully amortized them during the year. Book and tax amortization are equal. 4) Gayle Corporation accrued $250,000 related to accrued compensation. $200,000 was paid to employees by March 15, 2020. 5) Gayle Corporation accrued bad debt expense of $75,000 during the year, however only $35,000 of bad debts were actually written off in 2020. 6) Gayle Corporation made $300,000 of qualified charitable contributions. For purposes of this exercise, assume that no special provisions (medical contributions, etc.) related to charitable contributions apply. 7) Gayle Corporation purchased and placed in service the following assets that it would like to fully expense under IRC Sec. 179: a. TV monitors purchased for $150,000 on June 1, 2019 (Asset #4 in book depreciation schedule) b. Computers purchased for $40,000 on June 1, 2019 (Asset #5 in book depreciation schedule) c. Lighting equipment purchased on June 1, 2019 for $22,000 (Asset #7 in book depreciation schedule) 8) Gayle Corporation placed in service the following assets during the year which it would like to depreciate using standard MACRS depreciation: a. TV equipment received from shareholder Aggie Swenson b. Building received from shareholder Moss Corporation C. Recording equipment received from shareholder Carolina McLean d. Office equipment (chairs, tables, desks) purchased on June 1, 2019 for $10,000 (Asset #6 in book depreciation schedule) 9) On December 31, 2019, Gayle Corporation sold the TV equipment received at formation from shareholder Aggie Swenson for $21,000 (E&P basis in the TV equipment was $7,000 at time of sale). 10) On December 31, 2019, Gayle Corporation sold its 10% interest in Alphabet Inc. It sold its interest for $750,000, and it was originally purchased for $1,000,000 on April 15, 2019 (E&P basis in its interest = tax basis). 11) For purposes of this tax return, assume that the only transactions between Moss Corporation and Gayle Corporation are the transactions detailed above, and those payments are not base-erosion payments. 12) Gayle Corporation made distributions as follows: a. June 1, 2019 - $20,000 cash to Monty Gautier b. July 1, 2019 - $20,000 cash to Aggie Swenson c. September 1, 2019 - computers (FMV $51,000, adjusted basis $0, E&P adjusted basis $30,000, historical cost $40,000. Asset #5) to Moss Corporation d. October 1, 2019 - $9,000 cash to Carolina McLean e. November 1, 2019 - lighting equipment (FMV $30,000, adjusted basis $0, E&P adjusted basis $15,000, historical cost $22,000 ) in complete termination of Aggie Swenson's interest in Gayle Corporation. Aggie Swenson also assumed a $10,000 liability associated with the distributed property 13) Gayle Corporation's financial statements + other relevant information are included in a separate file. Expense: Salaries and compensation Accrued Vacation/bonus Bad debt expense Amortization of services Depreciation Charitable contributions Capital loss on sale of Alphabet Inc. Stock Other operating expenses Tax expense accrued $400,000 $250,000 $75,000 $20,000 $16,115 $300,000 $250,000 $275,000 $100,000 $1,686,115 Book Net income $396,760 $331,760 $33,176.04 Assets: 3/31/2019 12/31/2019 1,002,000 Cash $ $ Accounts Receivable $ $ 500,000 $ $ $ 89,000 $ $ (40,000) 229,000 (11,844) Allowance for bad debt Buildings + Other depreciable assets Accumulated Depreciation Capitalized services Stock in Alphabet Inc. Investment in Subsidiary 20,000 $ $ $ $ $ $ $ $ 200,000 1,879,156 109,000 $ Liabilities & Shareholder's Equity: $ $ (250,000) (1,231,000) (9,000) $ $ $ A Accrued Compensation Accounts Payable Other liabilities Common stock APIC - Treasury Stock Treasury Stock Retained Earnings (100,000) $ $ $ $ $ $ $ (100,000) (9,146) 20,000 (309,010) (1,879,156) A (109,000) $ $ For the year ended 12/31/2019 Income: $2,000,000 $65,000 Advertising revenue Dividends- Alphabet Inc. Dividends - South Seattle Corp. Gain on sale of asset Interest income on tax-exempt bonds $2,875 $15,000 $2,082,875 Expense: Salaries and compensation Accrued Vacation/bonus Bad debt expense Amortization of services Depreciation Charitable contributions Capital loss on sale of Alphabet Inc. Stock Other operating expenses Tax expense accrued $400,000 $250,000 $75,000 $20,000 $16,115 $300,000 $250,000 $275,000 $100,000 $1,686,115 Book Net income $396,760 $331,760 $33,176.04 Tax Return Data Gayle Corporation is a calendar year taxpayer that was formed on March 31, 2019. It was incorporated as a C corporation in the state of Washington. It is an accrual method taxpayer. Its primary industry is broadcast communications. Its corporate office is located at 8562 Seaway Boulevard, Seattle, WA 98123, phone number (206) 867-5555. Gayle Corporation is not part of a consolidated group for U.S. tax purposes, and it is not a personal holding corporation or personal services corporation. As part of this exercise, Gayle Corporation will need to apply for an Employer Identification Number (EIN). Gayle Corporation's shareholders were as follows at formation: 1) Monty Gautier, SSN 222-222-3333 Address: 5076 17th Avenue, Seattle, WA 98122. Received 20,000 shares of Gayle Co. common stock in exchange for performing services valued at $20,000. 2) Aggie Swenson, SSN LIT-111-2222 Address: 998 Large Avenue, Seattle, WA 98176. Contributed TV equipment (FMV $20,000, adjusted basis $5,000, purchased for $12,000 on February 1, 2016. Asset #1 in book depreciation schedule) in exchange for 20,000 shares of Gayle Co. common stock. 3) Moss Corporation, EIN 867-530-9555 Address: 223 Avenue Louise, Brussels, Belgium 1004 Contributed a building (FMV $60,000, adjusted basis $20,000, purchased for $30,000 on January 1, 2010. Asset #2 in book depreciation schedule) in exchange for 51,000 shares of Gayle Co. common stock and a Gayle Co. note of $9,000. 4) Carolina McLean, SSN 999-999-8765 Address: 327 Andre Reynolds Drive, Lisbon, Portugal Contributed recording equipment (FMV $9,000 adjusted basis $15,000, purchased for $12,000 on November 1, 2017. Asset #3 in book depreciation schedule) in exchange for 9,000 shares of Gayle Co. common stock. At formation, total shares issued and outstanding: 100,000 shares of common stock. During 2019, the following events occurred: 1) Gayle Corporation received dividends as follows: a. June 1, 2019 - $65,000 from Alphabet Inc, a company in which Gayle Co. owns a 10% interest. b. September 1, 2019 - $100,000 from South Seattle Corp., a company in which Gayle Co. owns a 75% interest. 2) Gayle Corporation made estimated tax payments of $100,000. 3) Gayle Corporation capitalized the contributed services from Monty Gautier and fully amortized them during the year. Book and tax amortization are equal. 4) Gayle Corporation accrued $250,000 related to accrued compensation. $200,000 was paid to employees by March 15, 2020. 5) Gayle Corporation accrued bad debt expense of $75,000 during the year, however only $35,000 of bad debts were actually written off in 2020. 6) Gayle Corporation made $300,000 of qualified charitable contributions. For purposes of this exercise, assume that no special provisions (medical contributions, etc.) related to charitable contributions apply. 7) Gayle Corporation purchased and placed in service the following assets that it would like to fully expense under IRC Sec. 179: a. TV monitors purchased for $150,000 on June 1, 2019 (Asset #4 in book depreciation schedule) b. Computers purchased for $40,000 on June 1, 2019 (Asset #5 in book depreciation schedule) c. Lighting equipment purchased on June 1, 2019 for $22,000 (Asset #7 in book depreciation schedule) 8) Gayle Corporation placed in service the following assets during the year which it would like to depreciate using standard MACRS depreciation: a. TV equipment received from shareholder Aggie Swenson b. Building received from shareholder Moss Corporation C. Recording equipment received from shareholder Carolina McLean d. Office equipment (chairs, tables, desks) purchased on June 1, 2019 for $10,000 (Asset #6 in book depreciation schedule) 9) On December 31, 2019, Gayle Corporation sold the TV equipment received at formation from shareholder Aggie Swenson for $21,000 (E&P basis in the TV equipment was $7,000 at time of sale). 10) On December 31, 2019, Gayle Corporation sold its 10% interest in Alphabet Inc. It sold its interest for $750,000, and it was originally purchased for $1,000,000 on April 15, 2019 (E&P basis in its interest = tax basis). 11) For purposes of this tax return, assume that the only transactions between Moss Corporation and Gayle Corporation are the transactions detailed above, and those payments are not base-erosion payments. 12) Gayle Corporation made distributions as follows: a. June 1, 2019 - $20,000 cash to Monty Gautier b. July 1, 2019 - $20,000 cash to Aggie Swenson c. September 1, 2019 - computers (FMV $51,000, adjusted basis $0, E&P adjusted basis $30,000, historical cost $40,000. Asset #5) to Moss Corporation d. October 1, 2019 - $9,000 cash to Carolina McLean e. November 1, 2019 - lighting equipment (FMV $30,000, adjusted basis $0, E&P adjusted basis $15,000, historical cost $22,000 ) in complete termination of Aggie Swenson's interest in Gayle Corporation. Aggie Swenson also assumed a $10,000 liability associated with the distributed property 13) Gayle Corporation's financial statements + other relevant information are included in a separate file. Expense: Salaries and compensation Accrued Vacation/bonus Bad debt expense Amortization of services Depreciation Charitable contributions Capital loss on sale of Alphabet Inc. Stock Other operating expenses Tax expense accrued $400,000 $250,000 $75,000 $20,000 $16,115 $300,000 $250,000 $275,000 $100,000 $1,686,115 Book Net income $396,760 $331,760 $33,176.04 Assets: 3/31/2019 12/31/2019 1,002,000 Cash $ $ Accounts Receivable $ $ 500,000 $ $ $ 89,000 $ $ (40,000) 229,000 (11,844) Allowance for bad debt Buildings + Other depreciable assets Accumulated Depreciation Capitalized services Stock in Alphabet Inc. Investment in Subsidiary 20,000 $ $ $ $ $ $ $ $ 200,000 1,879,156 109,000 $ Liabilities & Shareholder's Equity: $ $ (250,000) (1,231,000) (9,000) $ $ $ A Accrued Compensation Accounts Payable Other liabilities Common stock APIC - Treasury Stock Treasury Stock Retained Earnings (100,000) $ $ $ $ $ $ $ (100,000) (9,146) 20,000 (309,010) (1,879,156) A (109,000) $ $ For the year ended 12/31/2019 Income: $2,000,000 $65,000 Advertising revenue Dividends- Alphabet Inc. Dividends - South Seattle Corp. Gain on sale of asset Interest income on tax-exempt bonds $2,875 $15,000 $2,082,875 Expense: Salaries and compensation Accrued Vacation/bonus Bad debt expense Amortization of services Depreciation Charitable contributions Capital loss on sale of Alphabet Inc. Stock Other operating expenses Tax expense accrued $400,000 $250,000 $75,000 $20,000 $16,115 $300,000 $250,000 $275,000 $100,000 $1,686,115 Book Net income $396,760 $331,760 $33,176.04