Reference no: EM131263964
C CORPORATION TAX RETURN PROBLEM
Sam Smith (446-46-4646) and Jane Jones (312-12-1212) own and operate The Sporting Goods Shop, Inc, a retail sporting goods store. The corporation was formed on January 1, 2011. Sam is the president and owns 70 percent of the common stock while Jane is the secretary-treasurer and owns the remaining 30 percent. Both are U.S. citizens and full-time employees of the corporation and devote 100 percent of their work time to the business. Sam received a salary of $150,000 and Jane received a salary of $60,000. Other pertinent information:
- The corporate address is 1234 Midtown Blvd., Houston, TX 77006. The employer ID number is 76- 0245100; the principal business activity is ??? (look it up in the tax software).
- The corporation uses the accrual method of accounting and reports on a calendar year basis. For AMT purposes, the annual gross receipts in 2014 were $2,000,000; 2013, $1,900,000; 2012, $1,500,000; 2011, $1,000,000.
- During 2015, the corporation distributed a cash dividend of $60,000 to Sam and Jane based on their ownership interests. It does not exceed the corporation's total earnings and profits.
- The corporation's estimated bad debt expense for the year was $5,000. Actual bad debts were $1,000 from delinquent customer Romney who died penniless.
- Equipment and other depreciable assets are fully depreciated for both tax and book purposes.
- Life insurance premiums were paid on term policies covering the lives of the two owners. The corporation is the beneficiary.
- The company took a physical count of its inventory on the last day of the year. On that date, it was determined that ending inventory was $360,000. This is not reflected in the financial statements below. Inventories are determined using the lower of cost or market method.
- During 2015, the corporation made timely estimated payments of $240,000 to the IRS ($60,000 each quarter on 4/15, 6/15, 9/15, and 12/15) and expensed them per the books.
- The long-term capital gain resulted from the sale of 100 shares of ABC Corp. stock on 12/31/2015 for $8,000. The long-term capital loss is from the sale of 50 shares of DEF Corp on 7/1/2015 for $2,000. Both stocks had been purchased 6/30/2014. Form 1099-B was received for these sales and it shows basis reported for both stock sales.
- The corporation has an NOL carryover from 2014 in the amount of $10,000.
- The corporation has filed timely all required Forms 1099.
- The corporation wants any overpayment of taxes refunded; they do not want the quick refund.
The Sporting Goods Shop Inc.'s per books profit and loss statement for 2015 reflects the following debits and credits:
Account Debit Credit
Gross sales $2,100,000
Dividends received from stock investments in less-
than-20%-owned U.S. corporations 5,000
Interest income
State bonds $ 4,000
Federal notes 6,000 10,000
Long-term capital gain 7,000
Long-term capital loss 9,000
Purchases 700,000
Life insurance premiums 10,000
Account (cont'd) Debit Credit
Salaries - officers 210,000
Salaries - clerical and sales 265,000
Taxes (payroll) 50,000
Repairs 19,000
Interest expense
Loan to purchase state bonds 3,200
Other business loans 11,800 15,000
Advertising 63,000
Charitable contributions paid in 2015 90,000
Meals and entertainment (subject to 50% limit) 16,000
Bad debt expense 5,000
Federal income tax paid and expensed 240,000
Federal income tax penalty paid 1,000
A comparative balance sheet per books reports the following information:
Assets Jan. 1, 2015 Dec. 31, 2015
Cash $110,000 $371,000
Trade notes and accounts receivable 14,000 31,000
Allowance for doubtful accounts (2,000) (6,000)
Inventories 375,000 375,000
Federal bonds 115,000 220,000
State bonds 89,000 218,000
Stock investments (current assets) 614,000 670,000
Equipment and other depreciable assets 251,000 251,000
Accumulated depreciation (251,000) (251,000)
Total assets $1,315,000 $1,879,000
Liabilities and Equity
Accounts payable $65,000 $360,000
Other current liabilities 100,000 100,000
Mortgages payable (long-term) 400,000 300,000
Common stock 150,000 150,000
Retained earnings (unappropriated) 600,000 969,000
Total liabilities and equity $1,315,000 $1,879,000
Required:
Prepare and print Form 1120 for the Sporting Goods Shop, Inc. for tax year 2015, including Schedules C, D, G, J, K, L, M-1, M-2, and all accompanying statements and worksheets (Form 1125-A, Form 8949, 1125-E, and Line Explanations/Schedules).
The print-out of the official federal tax return with all forms/statements/worksheets should total about 20 pages. This is all you will turn in on the project's due date. Write your name legibly on page one of the print-out. Do not print-out the client documents.
Use the tax software that comes with the textbook or other tax software as long as it is for tax year 2015. Forms, schedules, and instructions are also available at the IRS website www.irs.gov. The instructions may be useful in completing the forms.
Attachment:- TAX RETURN PROBLEM.rar