Reference no: EM133580930
Assignment: Form 1120S And Schedule K-1s
John Weaver (123-45-6781) and George Kupp (123-45-6782) are 50% and 50% owners, respectively of Scully, Inc. (11-1111120), a Baseball manufacturing company located at 1525Valley Glenn Ave. Tustin CA 92782. Scully's S- election was made effective January 1, 2021.Prior to that Scully was a C Corporation incorporated on 6/15/1980.On 12/31/2022, the Company sold interest in the Land used in the trade or business for$1,202,000 Cash. The basis of the land was $2,000 purchased on 1/1/2019. No estimated tax payments have been made.
The following information was taken from the company's 2022 income statement without regard to the sale to the sale of Land:
Interest income $ 200,000
Gross sales receipts 2,610,000
Beginning inventory 9,607
Direct labor (203,102)
Direct materials purchased (278,143)
Direct other costs (249,356)
Ending inventory 3,467
Salaries and wages (442,103)
Officers' salaries ($100,000 each to Weaver and Kupp) (200,000)
Repairs (206,106)
Depreciation expense, tax and book (assume Bonus Depreciation-Section 168(k)) (15,254)
Interest expense (35,222)
Rent expense (operating) (40,000)
Taxes (65,101)
Charitable contributions (cash) (40,000)
Advertising expenses (30,000)
Payroll penalties (15,000)
Other deductions (59,899)
Net Unrealized Built-In Gain-Land @12/31/2021 1,000,000
A comparative balance sheet appears in a separate file.
Scully's accounting firm provides the following additional information.
Distributions to shareholders $500,000
Beginning balance, Accumulated adjustments account 111,148
W-2 wages for QBI 795,205
Scully Inc.
Comparative Balance Sheets
2021 and 2022
12/31/2021 12/31/2022
Cash $47,840 TBD
Accounts Receivable93,100 123,104
Inventories9,607 3,467
Prepaid Expenses 8,333 17,582
Building and Equipment138,203 185,348
Accumulated Depreciation (84,235) TBD
Land 2,000 -
Total Assets 214,848 TBD
Accounts Payable 42,500 72,300
Notes Payable-Short Term4,500 2,100
Notes Payable-Long Term26,700 24,300
Loan to Scully - 100,000
Federal Taxes Payable- TBD
Capital Stock 30,000 30,000
Retained Earnings 111,148 TBD
Total Liabilities and Equity214,848$ TBD
Question I. Using the preceding information, prepare a 2022 Form 1120S and Schedule K-1s for John Weaver 25 Newport Blvd, Irvine CA 92618, and George Kupp, 10 Main Street, Irvine, CA 92618. Complete the Forms 1125-A, 1125-E, 4562, 4797 and Schedule D and other forms you deem necessary. If any information is missing, make realistic assumptions. Suggested software: Pro Connect Tax Online.
Question II. Prepare a letter to one of the S Corporation shareholders explaining what they should do with the information on the K-1 on their individual tax returns. DO NOT USECOMPUTER GENERATED LETTERS
Question III. Prepare write up describing the similarities and differences between an S Corporation, partnership 1065 and corporate tax return 1120 that you have prepared. Also discuss the tax aspects of the S Corporation return and any significant you want to communicate to Scully, Inc. (tax issues, planning ideas, etc.). Use appropriate authorities