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PART I – Tax Return #1, Corporate Return
Background
Jane Collier, James Taye, and Steve Allwine each own one-third of the common stock of Tasty Treats and Beverages. The corporation was incorporated on April 3, 2004. It has only one class of stock outstanding and operates as a C corporation for tax purposes. Tasty Treats and Beverages caters kid-friendly social events.
- Located at 1215 Blue Horizon, Dallas, TX 12234.
- Employer Identification Number is 12-34567890.
- Business activity is catering food. Its business activity code is 722300.
- The shareholders also work as officers for the corporation as follows:
- Jane is the chief executive officer and president (Social Security number 242-62-5786).
- James is the executive vice president and chief operating officer (Social Security number 563-58-8923).
- Steve is the vice president of finance (Social Security number 575-58-1572).
- All officers devote 100% of their time to the business
- All officers are U.S. citizens.
- Use the accrual method of accounting and have a calendar year-end.
- Four equal estimated tax payments of $28,000 each quarter. Its tax liability last year was $85,000.
- If it has overpaid its federal tax liability, the corporation would like to receive a refund.
- Dividend paid of $20,000 to its shareholders on October 1. The Corporation had ample earnings and profits (E&P) to absorb the distribution.
Financial Statements
Tasty Treats and Beverages, Inc. |
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Income Statement |
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For year ended December 31, 2013 |
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Revenue from sales |
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1,500,000 |
Sales returns and allowances |
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(25,000) |
Cost of goods sold |
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(325,000) |
Gross profit from operations |
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1,150,000 |
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Other Income: |
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Capital loss |
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(7,500) |
Dividend income |
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15,000 |
Interest income |
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12,000 |
Gross income |
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1,169,500 |
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Expenses: |
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Compensation |
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(750,000) |
Depreciation |
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(12,000) |
Bad debt expense |
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(7,800) |
Meals and entertainment |
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(3,000) |
Maintenance |
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(2,500) |
Property taxes |
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(10,000) |
State income taxes |
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(30,000) |
Other taxes |
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(11,000) |
Rent |
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(28,000) |
Interest |
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(7,300) |
Advertising |
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(6,200) |
Professional services |
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(5,000) |
Employee benefits |
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(8,000) |
Supplies |
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(2,500) |
Other expenses |
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(1,750) |
Total expenses |
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(885,050) |
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Income before taxes |
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284,450 |
Federal income tax expense |
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96,713 |
Net income after taxes |
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187,737 |
Tasty Treats and Beverages, Inc. |
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Balance Sheet |
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December 31, 2013 |
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ASSETS |
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January 2013 |
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December 2013 |
Cash |
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175,000 |
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190,000 |
Accounts Receivable |
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63,000 |
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54,000 |
Allowance for doubtful accounts |
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(8,000) |
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(7,000) |
Inventory |
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225,000 |
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275,000 |
US government bonds |
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30,000 |
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25,000 |
State and local bonds |
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50,000 |
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50,000 |
Investments in stock |
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325,000 |
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335,000 |
Fixed assets |
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475,000 |
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485,000 |
Accumulated depreciation |
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(198,000) |
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(215,000) |
Other assets |
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11,000 |
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12,000 |
Total assets |
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1,148,000 |
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1,204,000 |
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Liabilities and Stockholder’s Equity |
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Accounts payable |
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225,000 |
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200,000 |
Other current liabilities |
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135,000 |
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55,000 |
Other liabilities |
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75,000 |
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68,263 |
Capital stock |
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250,000 |
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250,000 |
Retained earnings |
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463,000 |
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630,737 |
Total liabilities and stockholder’s equity |
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1,148,000 |
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1,204,000 |
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Additional Information
- Inventory-related purchases during 2013 were $375,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of §263A do not apply.
- Of the $12,000 interest income, $1,500 was from a City of Dees bond that was used to fund public activities (issued in 2011), $1,750 was from an Border city bond used to fund private activities (issued in 2004), $2,500 was from a U.S. Treasury bond, and the remaining $6,250 was from a money market account.
- Dividend income came from ABC Inc. Owned 10,000 shares of the stock in ABC Inc. at the beginning of the year. This represented 10 percent of outstanding stock.
- On September 1, 2013, the corporation sold 1,000 shares of its ABC stock for $15,000. It had originally purchased these shares on June 13, 2006, for $22,500. After the sale, the Corporation owned 9 percent of ABC.
- compensation is as follows:
- Jane $175,000
- James $150,000
- Steve $150,000
- Other $275,000
- The Corporation wrote off $10,000 in accounts receivable as uncollectible during the year.
- Regular tax depreciation was $28,000. None of the depreciation should be claimed on Form 1125A.
- The $7,300 interest expense was from a business loan.
- Other expenses include $3,000 for premiums paid on term life insurance policies for which Tasty Treats and Beverages, Inc. is the beneficiary. The policies cover the lives of Jane, James, and Steve.