Tax Return Problem 14-110:

KJJ Corp. was formed on October 10, 1997 by Kimberly Jen (123-45-6789), Jennifer James (234-56-7890) and James Kim (345-067-8901). It is a hardware store and it is located at 175 Clerk Road, Newtown, OH 45105. KJJs employer identification number is 10-1010101 and its business code is 444130. KJJs telephone number is (513) 525-1234 and its email address is K..p@kjj.com.

KJJ Corp. uses the calendar year and the accrual basis. It uses straight-line depreciation for tax and book purposes and FIFO and lower-of-cost-or-market for inventory purposes.

Kimberly, Jennifer, and James each receive 200 shares of KJJ Corp.s common stock on October 10, 1997. No other stock has been issued or is outstanding. Each is a fulltime employee of the firm and each is paid $200,000.

KJJ Corp. mad a $105,000 ($35,000 to each owner) cash distribution in 2011.

During 2011, KJJ Corp. made estimated federal tax payments of $55,000 each quarter.

Financial information for 2011 follows:

Income Statement

Income

Sales $5,400,000

Sales returns and allowances 20,000

Net Sales $5,380,000

Cost of goods sold 3,120,000

Gross profit 2,260,000

Interest income

Corporate bonds $20,000

State bonds 60,000 80,000

Dividend income 100,000

Total income $2,440,000

Expenses

Salaries-Officers $600,000

Salaries and wages- Other 510,000

Life insurance premiums on three owners/officers KJJ Corp. is the beneficiary 20,000

Repairs and maintenance 30,000

Taxes (state, local, payroll) 249,000

Interest expense

Loans to acquire state bonds $25,000

Other 47,000 72,000

Advertising 36,000

Charitable contributions 25,000

Depreciation 120,000

Employee benefits program 63,000

Total expenses 1,725,000

Net income before taxes $715,000

Federal income taxes (214,200)

Net income per books $500,800

Balance Sheet

12/31/10 12/31/11

Assets:

Cash $400,000 $550,000

Trade and accounts receivables 600,000 623,000

Inventories 1,500,000 1,330,000

Corporate bonds 250,000 260,000

State bonds 800,000 851,000

Stock (<20% owned, domestic corporations) 900,000 1,000,000

Prepaid federal income taxes 0 5,800

Property, plant, and equipment 3,000,000 3,030,000

Accumulated depreciation (1,100,000) (1,220,000)

Land 50,000 50,000

Other assets 6,000 3,000

Total assets $6,406,000 $6,482,800

Liabilities and Owners Equity

Accounts payable $301,000 $257,000

Other current liabilities 405,000 430,000

Mortgages 1,500,000 1,200,000

Capital stock 3,000,000 3,000,000

Retained earnings 1,200,000 1,595,800

Total liabilities and owners equity $6,406,000 $6,482,800

Prepare KJJ Corps Form 1120 and related schedules Schedules A, C, E, J, K, L, M-1, and M-2. (Do not complete Form 4562 [depreciation calculation] since you do not have all the information). Go to www.irs.gov and download the necessary forms.