Tax Return Problem

1. John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners, respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303. Premiums S election was made on January 15, 2011, its date of incorporation. The following information was taken from the companys 2018 income statement.

   Interest income	$ 100,000
   Gross sales receipts	2,410,000
   Beginning inventory	9,607
   Direct labor	(203,102)
   Direct materials purchased	(278,143)
   Direct other costs	(249,356)
   Ending inventory	3,467
   Salaries and wages	(442,103)
   Officers salaries ($75,000 each to Parsons and Smith)	(150,000)
   Repairs	(206,106)
   Depreciation expense, tax and book	(15,254)
   Interest expense	(35,222)
   Rent expense (operating)	(40,000)
   Taxes	(65,101)
   Charitable contributions (cash)	(20,000)
   Advertising expenses	(20,000)
   Payroll penalties	(15,000)
   Other deductions	(59,899)
   Book income	704,574

   A comparative balance sheet appears below.

2. Cash: 47,840 (Jan 1, 2018), ?? (Dec 31, 2018)

3. A/R: 93,100 (1/1/18), 123,104 (12/31/18)

4. inventories: 9,607 (1/1/18), 3,467 (12/31/18)

5. prepaid expenses: 8,333 (1/1/18),17,582 (12/31/18)

6. building and equipment: 138,203 (1/1/18), 185,348 (12/31/18)

7. Accumulated depreciation: (84,235) (1/1/18), (?) (12/31/18)

8. Land: 2,000 (1/1/18), 2,000 (12/31/18)

9. Total assets: 214,848 (1/1/18), 844,422 (12/31/18)

10. A/P: 42,500 (1/1/18), 72,300 (12/31/18)

11. Notes payable (less than 1 yr): 4,500 (1/1/18), 2,100 (12/31/18)

12. Notes payable (more than 1 yr): 26,700 (1/1/18), 24,300 (12/31/18)

13. Capital Stock: 30,000 (1/1/18), 30,000 (12/31/18)

14. Retained earnings: 111,148 (1/1/18), ??? (12/31/18)

15. Total liabilities and capital: 214,848 (1/1/18), 844,422 (12/31/18)

1. Premiums accounting firm provides the following additional information.

   Distributions to shareholders	$100,000
   Beginning balance, Accumulated adjustments account	111,148

   Using the preceding information, prepare Schedule K1s for John Parsons and George Smith, 5607 20th Street, Cut and Shoot, TX 77303. If any information is missing, make realistic assumptions. Suggested software: ProConnect Tax Online.