Taxable Income (line 30) = $1,430,250.

On November 17, 2001, Autumn Leigh and Aaron Johns formed Sportico, Inc. to sell sporting goods. Pertinent information regarding Sportico, Inc. is summarized as follows:

Sportico Inc.'s business address is 2120 Rebecca Lane, Great Falls, Montana 59401; its telephone number is (575) 541-1122; and its email address is January 1, 2018

December 31, 2018

Cash

1,200,000

1,750,243

Accounts receivable

2,062,500

2,247,000

Inventories

2,750,000

3,030,000

Stock investment

1,125,000

1,075,000

State of Montana bonds

375,000

375,000

Certificates of Deposit

400,000

400,000

Prepaid federal tax

0

3,977

Buildings and other depreciable assets

4,805,000

5,305,000

Accumulated depreciation

(727,000)

(1,602,000)

Land

812,500

812,500

Other assets

140,000

178,500

Total assets

12,943,000

13,575,220

Accounts payable

2,284,000

1,975,000

Other current liabilities

175,000

155,000

Mortgages

4,625,000

4,575,000

Capital stock

2,500,000

2,500,000

Retained Earnings

3,359,000

4,370,220

Total liabilities and equity

12,943,000

13,575,220

The following additional information is found in the tax working papers:

Dividends were from Heath Corporation, a less-than-20%-owned domestic corporation.[1]

Other income includes key officer life insurance proceeds of $200,000.

The capital gain resulted from the sale of Bulldog Enterprises stock. Sportico, Inc. purchased the Bulldog Enterprises stock on 3/2/2011 for $24,000.

The loss due to worthlessness of stock was due to the bankruptcy of CLL, Inc. The stock was purchased March 5, 2009.

Purchases (for COGS) were $3,380,000.

Retained earnings are unappropriated.

All contributions were paid in cash during the current year to Great Falls University.

State income taxes for 2018 were $3,000 (included in the state, local, and payroll tax expense).

Actual bad debts for the year were $5,500.

The actual warranty outlay for the year was $7,250.

For tax purposes, depreciation amounted to $950,000.

Sportico, Inc. declared a $345,000 cash dividend during the current year.

During 2018, Sportico, Inc. made estimated tax payments of $80,000 each quarter to the IRS.

Salaries and wages includes $200,000 paid to Mr. Johns and Ms. Leigh ($100,000 each).

Income Statement

Income

Gross sales

6,900,000

Sales returns and allowances

(70,000)

Net sales

6,830,000

Cost of goods sold

(3,100,000)

Gross profit

3,730,000

Dividends

18,000

Interest income

State of Montana bonds

15,000

Certificates of deposit

27,500

42,500

Gain on sales of stock

8,000

Loss due to stock worthlessness

(27,000)

Other income

216,500

Total income

3,988,000

Expenses

Salaries and wages

805,000

Taxes (state, local, and payroll)

40,000

Interest expense

Loan to purchase Montana bonds

4,000

Funds borrowed for working capital

22,000

26,000

Warranty expense

9,300

Depreciation*

875,000

Charitable contributions

88,000

Premiums on key-man life insurance policies

10,000

Bad debt expense

9,800

Other expenses

435,000

Total expenses

(2,298,100)

Net income before taxes

1,689,900

Federal income tax

(333,680)

Net income per books

1,356,220