Tax Return Problem $19$

To be completed after Chapter $21$

Required:

$$ Using the information provided below, complete First Place Inc.$$s $($FPI$)2022$ Form $1120$S$.$ Also complete Kate Kleiber$$s Schedule K$-1$ and the forms $1125-$A and $1125-$E$.$

$$ 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 $1120$S$.$

$$ 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:

First Place Inc. $($FPI$)$ was formed as a corporation on January $5,2018,$ by its two owners Kate Kleiber and James Chandler. FPI immediately elected to be taxed as an S corporation for federal income tax purposes. FPI sells mountain climbing gear to retailers throughout the Rocky Mountain region. Kate owns $70$ percent of the FPI common stock $($the only class of stock outstanding$)$ and James owns $30$ percent, and both devote $100\%$ of their working time to FPI.

$$ FPI is located at $4200$ West $400$ North, Salt Lake City, Utah $84116.$

$$ FPI$$s Employer Identification Number is $87-5467544.$

$$ FPI$$s business activity is wholesale sales. Its business activity code is $423910.$

$$ Both shareholders work as employees of the corporation.

$$ Kate is the president of FPI $($Social Security number $312-89-4567).$ Kate$$s address is $1842$ East $8400$ South, Sandy, Utah $84094.$

$$ James is the vice president of FPI $($Social Security number $321-98-7645).$ James$$s address is $2002$ East $8145$ South, Sandy, Utah $84094.$

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

$$

The following is FPI$$s $2022$ income statement:

FPI Income Statement

For year ending December $31,2022$

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 $(14,000)$

Travel $(1,000)$

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 $ $110,000$

Notes:

$1.$ FPI$$s purchases during $2022$ were $$115,000.$ It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of $263$A do not apply to FPI, and that the company did not make any changes in the way it measures or tracks inventory during $2022.$

$2.$ Of the $$5,000$ interest income, $$2,000$ was from a West Jordan city bond used to fund public activities $($issued in $2018)$ and $$3,000$ was from a money market account.

$3.$ FPI$$s dividend income comes from publicly traded stocks that FPI has owned for two years.

$4.$ FPI$$s compensation is as follows:

o Kate, $$120,000$

o James, $$80,000$

o Other, $$400,000.$

$5.$ FPI wrote off $$6,000$ in accounts receivable as uncollectible during the year.

$6.$ FPI$$s total MACRS depreciation for $2022$ is $$17,000.$

$7.$ FPI made a $$10,000$ cash donation to the American Red Cross in $2022.$

$8.$ FPI$$s beginning balance of its Accumulated Adjustments Account $($AAA$)$ was $$320,000.$

$9.$ FPI distributed $$60,000$ to its shareholders.

FPI$$s balance sheet for the period ending $12/31/2022,$ and the prior year, is below.

FPI Balance Sheet

as of $12/31/2022$

$12/31/202112/31/2022$

Assets

Cash $ $90,000$ $$144,000$

Accounts receivable $300,000310,000$

Allowance for doubtful accounts $(60,000)(68,000)$

Inventory $45,00050,000$

State and local bonds $38,00038,000$

Investments in stock $82,00082,000$

Fixed assets $100,000100,000$

Accumulated depreciation $(20,000)(30,000)$

Other assets $20,00021,000$

Total assets $ $595,000$ $ $647,000$

Liabilities and Shareholders$$ Equity

Accounts payable $ $60,000$ $ $55,000$

Other current liabilities $5,0008,000$

Other liabilities $10,00014,000$

Capital stock $200,000200,000$

Retained earnings $320,000370,000$

Total liabilities and shareholders$$ equity $$595,000$ $$647,000$