Tax Return The Final Project listed below is found on page 11-50 of Prentice Halls Federal Taxation, 2015. Tax Form/Return Preparation Problem C:11-64 Prepare and submit an S Corporation Tax Return for 2013 with the required schedules. (In order to complete this exercise, you must first download the following tax form.) Directions for Using the PDF Tax Forms from www.IRS.gov The forms available from IRS.gov have document rights applied to them. Unlike most other PDF forms you may have encountered, these rights applied to these forms allow you to fill in all sections and to save your work. The only software required to use these forms is Adobe Reader, which should already be installed on your computer. If you do not have Adobe Reader, you can download it for free here. Directions for Submitting the Unit 10 Tax Return Project Compose your Assignment by filling in the IRS PDF return and save it as a pdf file with Username-AC430 Project-Unit#.doc (Example: TAllen- AC430 Project-Unit 10.doc). Submit your file by selecting the Final Project Dropbox by the end of Unit 10.

Refer to the facts in Tax Form/Return Preparation Problem C:9-58. Now assume the company is an S corporation rather than a partnership. Additional facts are as follows:

Drs. Bailey and Firth formed the corporation on January 1, 2012, and the corporation immediately elected S corporation status effective at the beginning of 2012.

Upon formation of the corporation, Dr. Bailey received common stock worth $1,080,000, and Dr. Firth received common stock worth $2,520,000 million.

The balance sheet information is the same as in Table C:9-3 except the equity section is as follows:

January 1, 2013

December 31, 2013

Common stock

$3,600,000

$3,600,000

Retained earnings

102,780

146,080

The $180,000 paid to Dr. Bailey is salary constituting W-2 wages (instead of a guaranteed payment). Ignore employment taxes (Social Security, etc.) on Dr. Baileys salary.

Qualified production activities income (QPAI) still equals $1.92 million, but employers W-2 wages allocable to U.S. production activities equal $1.01 million (because of Dr. Baileys salary). The company, being an eligible small pass-through S corporation, uses the small business simplification overall method for reporting these activities (see discussion for Line 12d of Schedule K and Line 12 of Schedule K-1 in the Form 1120S instructions).

Use book numbers for Schedule L and Schedule M-1 in Form 1120S.

TABLE C:11-2 Bottle-Up, Inc. Income Statement for the Year Ended December 31 of the Current Year (Problem C:11-63)

Sales

$2,500,000

Returns and allowances

(15,000)

Net sales

$2,485,000

Beginning inventory

$ 102,000

Purchases

900,000

Labor

200,000

Supplies

80,000

Utilities

100,000

Other manufacturing costs

188,000a

Goods available for sale

$1,570,000

Ending inventory

(96,000)

1,474,000 b

Gross profit

$1,011,000

Salariesc

$ 451,020

Utilities expense

54,000

Depreciation (MACRS depreciation is $36,311)

11,782

Automobile and truck expense

26,000

Office supplies expense

9,602

Advertising expense

105,000

Bad debts expense

620

Rent expense

30,000

Interest expensed

1,500

Meals and entertainment expense

21,000

Selling expenses

100,000

Repairs and maintenance expense

38,000

Accounting and legal expense

4,500

Charitable contributionse

9,000

Insurance expensef

24,500

Hourly employees fringe benefits

11,000

Payroll taxes

36,980

Other taxes

2,500

Penalties (fines for overweight trucks)

1,000

(938,004)

Operating profit

$ 72,996

Other income and losses:

Long-term gain on sale of capital assets

$ 48,666g

Sec. 1231 loss

(1,100)h

Interest on U.S. Treasury bills

1,200

Interest on State of Florida bonds

600

Dividends from domestic corporations

11,600

Investment expenses

(600)

60,366

Net income

$ 133,362

a Total MACRS depreciation is $74,311. Assume that $38,000 of depreciation has been allocated to cost of sales for both book and tax purposes so that the book and tax inventory and cost of sales amounts are the same. The AMT depreciation adjustment on personal property is $9,000.

b The cost of goods sold amount reflects the Uniform Capitalization Rules of Sec. 263A. The appropriate restatements have been made in prior years.

c Officer salaries of $120,000 are included in the total. All are employers W-2 wages.

d Investment interest expense is $500. All other interest expense is trade- or business-related. None of the interest expense relates to the production of tax-exempt income.

e The corporation made all contributions in cash to qualifying charities.

f Includes $3,000 of premiums paid for policies on lives of corporate officers. Bottle-Up is the beneficiary for both policies.

g The corporation acquired the capital assets on March 3, 2011 for $100,000 and sold them on September 15, 2013, for $148,666.

h The corporation acquired the Sec. 1231 property on June 5, 2012 for $10,000 and sold it on December 21, 2013, for $8,900.

TABLE C:11-3 Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year (Problem C:11-63)

January 1

December 31

Assets:

Cash

$ 15,000

$116,948

Accounts receivable

41,500

45,180

Inventories

102,000

96,000

Stocks

103,000

74,000

Treasury bills

15,000

16,000

State of Florida bonds

10,000

10,000

Building and equipment

374,600

375,000

Minus: Accumulated depreciation

(160,484)

(173,100)

Land

160,000

190,000

Total

$660,616

$750,028

Liabilities and equities:

Accounts payable

$ 36,000

$ 10,000

Accrued salaries payable

12,000

6,000

Payroll taxes payable

3,416

7,106

Sales taxes payable

5,200

6,560

Due to Mr. Hiebert

10,000

5,000

Mortgage and notes payable (current maturities)

44,000

52,000

Long-term debt

210,000

260,000

Capital stock

10,000

10,000

Retained earnings

330,000

393,362

Total

$660,616

$750,028

TABLE C:11-4 Bottle-Up, Inc. Statement of Change in Retained Earnings, for the Current Year Ended December 31 (Problem C:11-63)

Balance, January 1

$330,000a

Plus: Net income

$133,362

Minus: Dividends

(70,000)

63,362

Balance, December 31

$393,362

a The January 1 accumulated adjustments account balance is $274,300.

Required: Prepare the 2013 S corporation tax return (Form 1120S), including the following additional schedules and forms: Schedule D, Form 4562, and Schedule K-1.

Optional: (1) Complete Schedule M-2 in Form 1120S even though the company has never been a C corporation. For this purpose, the accumulated adjustments account at the beginning of 2013 is $102,780. (2) Prepare a schedule for each shareholders basis in his or her S corporation stock. For this purpose, Baileys stock basis at the beginning of 2013 is $1,110,834 and Firths is $2,246,346.