Question
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
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.
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