Tax Return Problem 8: C corporation Instructions:

Please complete the 2015 federal income tax return for Fun Fair of Ventura, Inc. based upon the facts presented below. If required information is missing, use reasonable assumptions to fill in the gaps.

Fun Fair of Ventura, Inc. (FF) is organized as a corporation and is taxed as a C corporation with a calendar year-end. FF owns and operates an amusement park in Oxnard, California. Oxnards weather allows FF to operate year-round. FFs address, employer identification number (EIN), and date of incorporation are as follows:

Fun Fair of Ventura, Inc. 50 Boardwalk Oxnard, California 93030 EIN: 36-4385943

Date Incorporated: July 23, 2000 FF has been at the same address since inception. FF has only common shares issued (no preferred stock).

FF is owned by 86 shareholders. The majority owner of FF is a large private equity firm based in San Jose, California called Amusement Ventures, LLC (AV). AVs address, employer identification, and other information are as follows:

Amusement Ventures, LLC 675 Shady Wood Boulevard San Jose, California 95101 EIN: 54-8293213

AV is taxed as a partnership for federal tax purposes. AV is organized in California. It owns 30% of the voting stock of FF directly. No other person or entity owns directly 20% or more, or owns, directly or indirectly, more than 50% of the voting stock of FF.

FF uses the accrual method of accounting. FF is not a subsidiary nor is it in an affiliated group with any other entity. FF is not audited by a CPA firm. It does, however, use GAAP-based financial statements. FF has never had a restatement of its income statement.

FF reported the following information for 2015:

FF did not pay dividends in excess of its current and accumulated earnings and profits.

None of the stock of FF is owned by non-U.S. persons

FF has never issued publicly offered debt instruments.

FF is not required to file a Form UTP

FF made payments that required it to file federal Form(s) 1099. These Forms 1099 were filed timely by FF.

None of the shareholders of FF changed during the year.

FF has never disposed of more than 65% (by value) of its assets in a taxable, non-taxable, or tax

deferred transaction.

FF did not receive any assets in a Section 351 transfer during the year. Additional information:

On August 1, 2015 FF was notified by its legal counsel that FF was being sued by a former employee regarding her termination of employment from FF. On December 21, 2015, a legal settlement was reached with this terminated employee. As part of the settlement, FF agreed to pay the employee a settlement amount of $190,000 on January 10, 2016. FF accrued this expense on its 2015 financial statements.

FF maintains a portfolio of tax-exempt securities (none of which is a private activity bond) and publicly- traded stocks as a measure to provide immediate liquidity if needed (none of these investments is debt financed). All of these securities originate from less than 20% owned domestic corporations.

From inception until this year the Rapid Coaster had been FFs main attraction. However due to safety, crowd appeal, and other factors, FF disposed of the Rapid Coaster on March 1, 2015 and purchased a new attraction known as the Vomitnator. The Rapid Coaster originally cost $2,000,000 and was placed in service on September 1, 2004. The Rapid Coaster was fully depreciated for book, regular tax, and AMT tax depreciation purposes.

The Vomitnator was installed and rendered operational on March 1, 2015. The Vomitnator cost $6,000,000 to acquire, install, and make ready for service.

FFs regular tax depreciation for the year is correctly calculated as $1,112,499 before considering the 2015 addition of the Vomitnator. FFs AMT depreciation for the year is correctly calculated as $744,977 before considering the 2015 addition of the Vomitnator. FF does not want to claim any current year bonus depreciation.

FF officer information for the year is as follows (compensation amounts included in total wages on the income statement for all employees):

Name	SSN	Percent of time devoted to business	Percent of stock owned	Amount of compensation
					Marissa Hunt	435-54-2342	100%	0.05%	$235,000
Dakon Williams	243-98-3242	100%	0.03%	$195,000
					Deon Johnson	194-23-7435	100%	0%	$165,000
Jennifer Conley	623-53-3920	100%	0%	$150,000

Near the end of the year, FF switched its property and casualty insurance company. As a result, the plan year for its insurance contract was altered. On December 31, 2015 FF prepaid insurance premiums of $25,000 representing coverage through February 15, 2016 as a condition of being accepted by the new company. FF did not expense any of the prepayment for financial accounting purposes

FF rents from vendors several pieces of equipment to use in its business. As of December 31, 2014 and December 31, 2015, respectively, FF had prepaid vendors for equipment rental of $30,000 for January 2015 and $35,000 for January 2016.

On December 26, 2015 FF prepaid a contractor $17,500 to repair several pieces of maintenance shop equipment in January of 2016. FF fully expects that the contractor will have completed the project by January 31, 2016.

All the accrued wages and bonus amounts on the financial statements as of December 31, 2015 were paid on February 28, 2016.

As of December 31, 2014 and 2015, respectively, FF had vacation accruals on its books of $29,000 and $35,000. As of March 15, 2015 and 2016, respectively, FF had paid $5,000 and $8,000 of those accrued amounts.

On December 2, 2015, the millionth customer entered the park. To recognize the accomplishment and to promote the amusement park through print and radio media advertisements, FF held a give-away contest wherein the lucky customer deemed to be the millionth customer would be given $100,000. The check was presented to the lucky winner on January 15, 2016.

The land on which FF resides is owned by the county. FF has a very favorable lease with the county that allows FF the ability to sublease any portion of the ground to another tenant. The board of directors of FF made the decision in the fall of 2015 to seek out a tenant for unimproved land that would not be utilized in any potential expansion plans. FF identified the potential renter and entered into a contract with the renter on December 1, 2015. The rent period is to begin on January 1, 2016; however, as part of the contract, the renter was required to pay a full six-month rental amount ($50,000) to FF by December 31, 2015. FF received a check of $50,000 on December 27, 2015 from the renter. This rental payment is not refundable to the renter under any circumstances.

FF maintains an inventory of several items that it uses in its amusement park. Inventory is valued at cost. FF has never has never changed it inventory method. FF uses specific identification for its inventory. FF has never written down any subnormal goods. The rules of Section 263A (Unicap) apply to FF. The Unicap calculated costs related to ending inventory at December 31, 2014 and 2015, respectively, were $15,000 and $19,000.

On December 1, 2015, FF paid a $400,000 dividend to all common stockholders.

During the year, FF made federal estimated income tax payments of $72,500 each on April 15, June 15, September 15 and December 15 of 2015 ($290,000 in total). If FF has overpaid its current year estimated taxes, it would like to apply the excess to its estimated tax payments for next year. FF is NOT a large corporation. FFs 2014 tax liability was $200,000.

FF made California state estimated income tax payments of $15,000 each on April 15, June 15, September 15 and December 15 of 2015 ($60,000 in total).

FF does not have a minimum tax credit carryover from 2014.

Financial Statements (kept on a GAAP basis): FUN FAIR OF VENTURA, INC. Balance Sheet

Modern Day Clothing, Inc.
Balance Sheet
Assets:				12/31/14	12/31/15
Cash				165,000	119,000
Accounts Receivable				128,000	75,000
Less: Allowance for Bad Debts				(43,000)	(49,000)
Inventory				422,000	390,000
Tax-exempt Securities				150,000	150,000
Publicly Traded Stocks				200,000	200,000
Fixed Assets				24,000,000	28,000,000
Less: Acc. Depreciation				(13,542,000)	(12,892,000)
Prepaid Insurance				0	25,000
Prepaid Rent				30,000	35,000
Prepaid Installation Contract				0	17,500
Other Assets				150,000	250,000
Total Assets:				11,660,000	16,320,500
Liabilities and Shareholders Equity:
Accounts Payable				48000	62,000
Accrued Employee Wages				123,000	118,000
Accrued Officer Bonuses				68,500	39,000
Accrued Employee Vacation				29,000	35,000
Legal Settlement Accrual				0	190,000
Prize Accrual				0	100,000
Unearned Rental Income				0	50,000
Note Payable-First Bank of CA (Credit Line)				1,540,000	1,084,000
Note Payable-Equipment Leasing, Inc.				7,112,000	11,728,000
Capital Stock				100,000	100,000
Additional paid-in Capital				2,000,000	2,000,000
Retained Earnings-Unappropriated				639,500	814,500
Total Liabilities and Shareholders Equity				11,660,000	16,230,500

Income Statement for the year ending December 31, 2015
Item				Amount
Income:
Gross Sales				26,523,275
Less: Returns				(113,500)
Net Sales				26,408,775
Cost of Goods Sold				(2,052,500)
Dividend Income				4,300
Interest Income				2,650
Municipal Bond Interest Income				2,300
Total Income:				24,366,525
Expenses:
Employee Salaries				13,905,600
Repairs and Maintenance				492,350
				58,000
Rent				1,543,000
Payroll Taxes				1,112,400
Licensing Fees				10,750
Property Taxes				277,000
Interest Expense				781,000
Depreciation				1,350,000
Office Supplies				33,950
Employee Training				53,750
Safety Expenses				31,000
Political Contribution				2,500
CA Safety Commission Fine				5,000
Advertising				290,500
Admission Supplies				143,250
Meals and Entertainment				8,500
Travel				13,550
Insurance				215,000
Legal Settlement				190,000
Prize Contest Expense				100,000
Fuel				158,675
Utilities				2,530,500
Telephone				135,250
Total Expenses before taxes:				23,441,525
CA state income tax expense				60,000
Federal tax expense				290,000
Total income taxes				350,000
Net Income:				575,000