The Snap-It-Open Corporation incorporated and began operations on January 15of the current year. Its address is 3701 Commerce Drive, Baltimore, MD 23239.Its employer identification number is 69-7414447. It elects to file its initial tax return as a calendar-year corporation and uses the accrual method of accounting. It elects the FIFO method of inventory valuation.

Jason Sprull (SSN 333-33-3333) and Martin Winsock (SSN 555-55-5555) formed the business. They each contributed $250,000 cash for 50 percent of the 100,000shares of $1 par value stock issued and outstanding.

The company was formed to assemble and market a unique, compact, snap-open umbrella and its business activity code is 339900. These umbrellas are sold to a variety of organizations as premiums. The company purchases the umbrella frames and several types of waterproof fabric for the umbrella material and covers from various manufacturers. It prints the organizations advertising logos or other designs on the umbrella material and covers. It then assembles these on the umbrella frames for delivery to the customer along with the covers.

On January 16, the company placed in service two new machines that they had purchased for $250,000 each for printing and cutting the fabric for the umbrellas and two used umbrella assembly machines purchased for $200,000each. The company obtained a bank loan of $750,000 secured by the machines. Jason and Martin were required to personally guarantee this loan that has an 8 percent annual interest rate on the unpaid balance. The first principal and interest payment of $160,000 is not due until January 16 of next year.

During the year, the company purchased $250,000 of fabric and $310,000 of umbrella frames. It returned one order of frames valued at $5,000 because of a defect in the snap-open mechanism and received a cash refund for that amount.

Both Jason and Martin worked full-time in the business. Jason was the salesperson for the company and Martin managed the office and the printing and assem-bly operations. Each received a salary of $60,000 for the year. They had sixemployees with the following incomes for the year: $45,000 for an accountant; $21,000 for a receptionist; $28,000 for each of two print machine operators; and $25,000 for each of two assembly machine operators. There are no accrued salaries or taxes as of the end of the current year. FUTA taxes are assessed on the first $7,000 of wages at a rate of 6.0 percent.

During the year, the company had $1,935,000 in umbrella sales and collected$1,430,000 on these sales. They also paid the following expenses in cash:

Rent $240,000

Repairs and maintenance $20,000

Utilities $80,000

Taxes and Licenses (excluding FICA and FUTA taxes) $10,000

Health insurance $16,000

Advertising $40,000

Travel (excluding meals) $20,000

Meals and entertainment $15,000

Group term life insurance $2,000

As an accrual-basis taxpayer, the company recognized $57,500 in interestexpense on the note ($750,000 .08 11.5/12) and established an allowance account for bad debts equal to two percent of sales.

They recognized depreciation expense for financial accounting equal to10percent of the purchase price for the new printing machines and 12.5 percent of the purchase price for the used assembly machines.

Their inventory at year-end consisted of $65,000 of fabric and $68,000 of umbrella frames based on the FIFO inventory method. (For simplicity, you are only required to allocate the factory salaries to the calculation of cost of goods sold.)

The company made estimated tax payments of $40,000 for the year.

Required

Part a.

Prepare a financial accounting income statement (before income tax) and balance sheet for Snap-It-Open Corporation for the current year. (Do not forget to compute FICA and FUTA taxes for all employees.)

Part b.

Complete a Form 1120 and Form 4562 for Snap-It-Open Corporation using the following additional information. The corporation wrote off no bad debts for the year and it maximized its cost recovery deductions on the four machines purchased.

Use 2013 tax forms.

I created the following income statement and balance sheet. My gross margin and net income before tax are off by $200,000 and the asset section of my balance sheet is off by $100,000. Liabilities and equities is also off by the $200,000 difference in net income. Any help determining where my calculations are off would be greatly appreciated.

Sales Revenue

$1,935,000

Cost of Goods Sold

628,000

Gross Margin

1,307,000

Operating Expenses

Salaries

$ 186,000

FICA/FUTA Taxes

25,698

Rent

240,000

Repairs and Maintenance

20,000

Utilities

80,000

Taxes and Licenses (excluding FICA and FUTA taxes)

10,000

Health Insurance

16,000

Advertising

40,000

Travel (excluding meals)

20,000

Meals and Entertainment

15,000

Group Term Life Insurance

2,000

Depreciation

100,000

Interest Expense

57,500

Allowance for Bad Debts

38,700

Total Operating Expenses

850,898

Net Income Before Tax

$ 456,102

Current Assets:
Cash		424,302
Accounts Receivable	505,000
Less Allowance for Bad Debt	38,700	466,300
Tax Deposits		40,000
Inventory		133,000
Total Current Assets		1,063,602
Long-Term Assets:
Machinery	900,000
Less Accumulated Depreciation	100,000	800,000
Total Long-Term Assets		800,000
Total Assets		1,863,602
Current Liabilities:
Interest Payable		57,500
Current Portion of Long-Term Notes Payable		102,500
Total Current Liabilities		160,000
Long Term Liabilities:
Notes Payable		647,500
Total Long-Term Liabilities		647,500
Total Liabilitites		807,500
Stockholder's Equity
Common Stock	100,000
Paid-In Capital	400,000
Retained Earnings	456,102
Total Stockholder's Equity		956,102
Total Liabilities and Stockholder's Equity		1,763,602

Cost of goods sold

Beginning Inventory	0
Purchases	560,000
Returns	-5,000
Available for sale	555,000
Ending Inventory	-133000
Factory Salaries	106,000
Depreciation	100,000
Cost of Goods Sold	628,000