Week 5 Assignment - Analyzing a Corporate Tax Return

Need serious help with this accounting assignment

Overview

You are a senior tax accountant in the firm, Ernest & Rainhouse. Joe, a new junior accountant, has just prepared his first corporate tax return for Zeus, Inc. The electronic filing system has rejected Zeus, Inc.'s Form 1120: U.S. Corporation Income Tax Return 2020 [PDF] Download Zeus, Inc.'s Form 1120: U.S. Corporation Income Tax Return 2020 [PDF]due to errors and omissions. Joe is seeking your help in determining his mistakes and in answering some corporate tax questions he is unsure about. You are to read the scenario below and then follow the instructions.

Scenario

Zeus, Inc. is organized as a corporation and is taxed as a C corporation with a calendar year-end. Zeus, Inc. owns and operates an amusement park in Los Angeles, California. Zeus, Inc.'s address, employer identification number (EIN), and date of incorporation are as follows:

Zeus, Inc. 77 Sunset Strip. Los Angeles, CA 90028. EIN: 56-1234567.

Date incorporated: July 1, 2010.

Zeus, Inc. is owned by 77 shareholders. No person or entity owns directly 20% or more, or owns, directly or indirectly, more than 50% of the voting stock of Zeus, Inc. No one is from outside of the United States.

Zeus, Inc. uses the accrual method of accounting. Zeus, Inc. is not audited by a CPA firm. It does, however, use GAAP-based financial statements and has never had a restatement of its income statement.

Zeus, Inc. reported the following information for 2020:

Zeus, Inc. made payments that required it to file federal form(s) 1099. The 1099s were filed timely.

Zeus, Inc.'s average annual gross receipts for the prior three years are under $26,000,000.

Zeus, Inc. elects to file a complete Schedule M-3 even if only M-1, or a partial M-3, is required.

Additional Information Used in the Preparation of Zeus, Inc. Financial Statements:

On August 1, 2020, Zeus, Inc. was notified by its legal counsel that Zeus, Inc. was being sued by a former employee regarding her termination of employment from Zeus, Inc. On December 21, 2020, a legal settlement was reached with this terminated employee. As part of the settlement, Zeus agreed to pay the employee a settlement amount of $190,000 on January 10, 2021. Zeus, Inc. accrued this expense on its 2020 financial statements.

Zeus, Inc. owns 12% of Fun Fair of Russia, a Russian corporation operating a theme park on the outskirts of Moscow. Fun Fair of Russia remitted dividends to Zeus, Inc. of $14,000. Zeus, Inc. also received $300 in dividends from holding marketable securities (all less than 20% owned by Zeus, Inc.).

From its inception until this year, Zip Coaster has been Zeus' main attraction, but it aged and lost appeal. Zeus, Inc. purchased a new attraction known as the Swirlwind. The Swirlwind was installed and placed in operation on March 1, 2020, at a cost of $6,000,000 to acquire and place into service.

Zeus, Inc. rents its amusement equipment from vendors. As of December 31, 2019, and December 31, 2020, respectively, Zeus, Inc. has prepaid vendors for equipment rental of $30,000 for January 2020 and $35,000 for January 2021. On December 26, 2020, Zeus, Inc. prepaid a contractor $17,500 to repair three pieces of maintenance shop equipment. Zeus, Inc. fully expects that the contractor will have completed the project by January 31, 2020.

As of December 31, 2019, and 2020, respectively, Zeus, Inc. had vacation accruals on its books of $29,000 and $35,000. On December 2, 2020, Zeus, Inc. held an advertising giveaway of $100,000.

Zeus, Inc. rents part of its unused land. Zeus, Inc. received a check for $50,000 on December 27, 2020, for a 6-month rental beginning January 1, 2021. The lease contains a clause that the rent is nonrefundable to the renter under any circumstances. During the year, Zeus, Inc. made the following estimated tax payments:

Estimated Tax Payments Date Federal Estimated Tax Payment California Estimated Tax Payment 4/15/2020 $72,500 $15,000 6/15/2020 $72,500 $15,000 9/15/2020 $72,500 $15,000 12/15/2020 $72,500 $15,000 . On December 1, 2020, Zeus Inc. paid $400,000 in dividends to all common stockholders.Officer Information % of Time Devoted to Name Social Security # % of Stock Owned Amount of Compensation Business Margo Harrington 123-45-6789 100% 05% $235,000 Dean Williams 987-65-4321 100% 03% $195,000 Dennis Johns 456-78-9321 100% 0% $165,000 Jamie Conway 321-45-6978 100% 0% $150,000Balance Sheet Zeus, Inc. Balance Sheet As of Dec. 31, 2019 As of Dec. 31, 2020 Assets: Cash 165,000 119,000 Accounts Receivable 128,000 75,000 Less: Allowance for Doubtful Accounts (43,000) (49,000) Inventory 422,000 390,000 Tax-exempt Securities 150,000 150,000 Publicly Traded Stocks 200,000 200,000 Fixed Assets 24,000,000 28,000,000 Less: Accumulated Depreciation (13,542,000) (12,892,000)Prepaid Insurance 25,000 Prepaid Rent 30,000 35,000 Prepaid Contractors 17,500 Other Assets 150,000 250,000 Total Assets 11,660,000 16,320,500 Liabilities & Stockholders' Equity: Accounts Payable 48,000 62,000 Accrued Wages 123,000 118,000 Accrued Bonuses 68,500 39,000 Accrued Vacation 29,000 35,000 Legal Settlement Accrual 190,000 Prize Accrual 100,000Notes Payable - Short Term 1,540,000 1,084,000 Notes Payable - Long Term 7,112,000 11,728,000 Capital Stock 100,000 100,000 Additional Paid-in Capital 2,000,000 2,000,000 Retained Earnings 639,500 814,500 Total Liabilities & Stockholders' Equity 11,660,000 16,320,500 Income Statement Zeus, Inc. Income Statement For the Year Ended December 31, 2020 Income: Sales 26,523,275 Less: Sales Returns & Allowances (113,500) Net Sales 26,409,775 Cost of Goods Sold (2,052,500) Gross Margin 24,357,275 Other Income: Dividend Income 14,300 Interest Income 2,650 Municipal Bond Interest Income 2,300 19,250Total Income: 24,376,525 Expenses: Employee Salaries 13,905,600 Repairs & Maintenance 492,350 Bad Debts 58,000 Rent 1,543,000 Payroll Taxes 1,112,400 Licensing Fees 10,750 Property Taxes 277,000 Interest Expense 781,000 Depreciation 1,350,000 Office Supplies 33,950 Employee Training 53,750e [ [ s e | [ e s | [ e e [ [ e Admission Supplies Attorney Fees Meals & Entertainment Travel Insurance Legal Settlement Prize Contest Expense Fuel Utilities 143,250 2,530,500 Telephone 135,250 Total Expenses Before Taxes 23,451,525 CA Income Tax Expense 60,000 Federal Tax Expense 290,000 Total Income Taxes 350,000 Net Income: 575,000