Zeus, Inc. Financial Statements:
Balance 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 | - | 100,000 |
| Unearned Rental Revenue | - | 50,000 |
| Notes 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 | 19,250 |
| Total 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 | | | 53,750 |
| Safety Expenses | | | 31,000 |
| Political Contribution | | | 2,500 |
| CA Safety Commission Fine | | | 5,000 |
| Advertising | | | 290,500 |
| Admission Supplies | | | 143,250 |
| Attorney Fees | | | 10,000 |
| Meals & Entertainment | | | 8,500 |
| Travel | | | 13,550 |
| Insurance | | | 215,000 |
| Legal Settlement | | | 190,000 |
| Prize Contest Expense | | | 100,000 |
| Fuel | | | 158,675 |
| Utilities | | | 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 |
- Identify at least three errors or omissions on the Zeus, Inc.'s Form 1120: U.S. Corporation Income Tax Return 2020 [PDF], justifying selections with IRS codes, IRS regulations, court cases, or FASB statements.
- Explain the criteria that requires the use of M-3 and describe how it is more beneficial to the financial statement user.
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 the 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. o 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. 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 S190,000 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 inception until this year, Zip Coaster has been Zeus's 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 give-away of $100,000. Zeus, Inc. rents part of their unused land. Zeus, Inc. received a check for $50,000 on December 27, 2020, for 6-months 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 dividends to all common stockholders. Additional Information Used in the Preparation of Zeus, Inc. Corporate Tax Return: Zeus, Inc. maintains a portfolio of tax-exempt securities and publicly traded stocks as a measure to provide immediate liquidity if needed. All of these securities originate from less than 20% owned domestic corporations. Zeus, Inc. paid an attorney $10,000 in obtaining the tax-exempt securities. Zeus's regular tax depreciation for the year is correctly calculated as $1,112,499 (from previous year's purchases) before considering the 2020 addition of the Swirlwind. Because of the Swirlwind's modular design, it is considered personal property. (Not real property.) Near the end of the year. Zeus, Inc. switched its property and casualty insurance company. As a result, the plan year for its insurance contract was altered. On December 31, 2020, Zeus, Inc. prepaid insurance premiums of $25,000 representing coverage through February 15, 2021, as a condition of being accepted by the new company. Zeus, Inc. did not expense any of the prepayments for financial accounting purposes. Zeus, Inc.'s officer information for the year is as follows: (Compensation amounts included in total wages on the income statement for all employees.) Officer Information Name Social Security # % of Time Devoted to Business % of Stock Owned Amount of Compensation 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% $150,000 All the accrued wages and bonus amounts on the financial statements as of December 31, 2019, were paid on February 28, 2020. The winner of the advertising give-away of $100,000 was presented the check on January 15, 2021. As of March 15, 2020, and 2021, respectively Zeus, Inc. had paid $5,000 and $8,000 of the vacation accrued amounts 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 the 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. o 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. 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 S190,000 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 inception until this year, Zip Coaster has been Zeus's 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 give-away of $100,000. Zeus, Inc. rents part of their unused land. Zeus, Inc. received a check for $50,000 on December 27, 2020, for 6-months 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 dividends to all common stockholders. Additional Information Used in the Preparation of Zeus, Inc. Corporate Tax Return: Zeus, Inc. maintains a portfolio of tax-exempt securities and publicly traded stocks as a measure to provide immediate liquidity if needed. All of these securities originate from less than 20% owned domestic corporations. Zeus, Inc. paid an attorney $10,000 in obtaining the tax-exempt securities. Zeus's regular tax depreciation for the year is correctly calculated as $1,112,499 (from previous year's purchases) before considering the 2020 addition of the Swirlwind. Because of the Swirlwind's modular design, it is considered personal property. (Not real property.) Near the end of the year. Zeus, Inc. switched its property and casualty insurance company. As a result, the plan year for its insurance contract was altered. On December 31, 2020, Zeus, Inc. prepaid insurance premiums of $25,000 representing coverage through February 15, 2021, as a condition of being accepted by the new company. Zeus, Inc. did not expense any of the prepayments for financial accounting purposes. Zeus, Inc.'s officer information for the year is as follows: (Compensation amounts included in total wages on the income statement for all employees.) Officer Information Name Social Security # % of Time Devoted to Business % of Stock Owned Amount of Compensation 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% $150,000 All the accrued wages and bonus amounts on the financial statements as of December 31, 2019, were paid on February 28, 2020. The winner of the advertising give-away of $100,000 was presented the check on January 15, 2021. As of March 15, 2020, and 2021, respectively Zeus, Inc. had paid $5,000 and $8,000 of the vacation accrued amounts
