TAX FORM/RETURN PREPARATION PROBLEM
C:11-63 Bottle-Up, Inc., was organized on January 8, 2000, and made its S election on January 24, 2000. The necessary consents to the election were filed in a timely manner. Its federal tax identification number is 38-1507869. Its address is 1234 Hill Street, Gainesville, FL 32607. Bottle-Up uses the calendar year as its tax year, the accrual method of accounting, and the first-in, first-out (FIFO) inventory method. Bottle-Up manufactures ornamental glass bottles. It made no changes to its inventory costing methods this year. It uses the specific identification method for bad debts for book and tax purposes. Herman Hiebert (S.S. No. 123-45-6789) and Melvin Jones (S.S. No. 100-67-2000) own 500 shares each. Both individuals materially participate in Bottle-Ups single activity. Herman Hiebert is the tax matters person. Financial statements for Bottle-Up for the current year are shown in Tables C:11-2 through C:11-4. Assume that Bottle-Ups business qualifies as a U.S. production activity and that its qualified production activities income is $90,000. The S corporation uses the small business simplified overall method for reporting these activities (see discussion for Line 12d of Schedules K and K-1 in the Form 1120S instructions). Prepare a current year S corporation tax return for Bottle-Up, showing yourself as the paid preparer.
Bottle-Up, Inc. Income Statement for the Year Ended December 31 of the Current
Year (Problem C:11-63)
|Returns and allowances||(15,000 )|
|Other manufacturing costs||188,000 a|
|Goods available for sale||$1,570,000|
|Ending inventory||(96,000 ) 1,474,000 b|
|Depreciation (MACRS depreciation is $36,311)||11,782|
|Automobile and truck expense||26,000|
|Office supplies expense||9,602|
|Bad debts expense||620|
|Interest expense d||1,500|
|Meals and entertainment expense||21,000|
|Repairs and maintenance expense||38,000|
|Accounting and legal expense||4,500|
|Charitable contributions e||9,000|
|Insurance expense f||24,500|
|Hourly employees fringe benefits||11,000|
|Penalties (fines for overweight trucks)||1,000 (938,004)|
|Other income and losses:|
|Long-term gain on sale of capital assets||$48,666g|
|Sec. 1231 loss||(1,100) h|
|Interest on U.S. Treasury bills||1,200|
|Interest on State of Florida bonds||600|
|Dividends from domestic corporations||11,600|
|Investment expenses||(600) 60,366|
a. Total MACRS depreciation is \$74,311. Assume that \$38,000 of depreciation has been allocated to cost of sales for both book and tax purposes so that the book and tax inventory and cost of sales amounts are the same. The AMT depreciation adjustment on personal property is \$9,000.
b. The cost of goods sold amount reflects the Uniform Capitalization Rules of Sec. 263A. The appropriate restatements have been made in prior years.
c. Officer salaries of $120,000 are included in the total. All are employers W-2 wages.
d. Investment interest expense is $500. All other interest expense is trade- or business-related. None of the interest expense relates to the production of tax-exempt income.
e. The corporation made all contributions in cash to qualifying charities.
f. Includes $3,000 of premiums paid for policies on lives of corporate officers. Bottle-Up is the beneficiary for both policies.
g. The corporation acquired the capital assets on March 3, 2007 for \$100,000 and sold them on September 15, 2009, for $148,666.
h The corporation acquired the Sec. 1231 property on June 5, 2008 for \$10,000 and sold it on December 21, 2009, for $8,900.
Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year
|January 1||December 31|
|State of Florida bonds||10,000||10,000|
|Building and equipment||374,600||375,000|
|Minus: Accumulated depreciation||(160,484)||(173,100)|
|Liabilities and equities:|
|Accrued salaries payable||12,000||6,000|
|Payroll taxes payable||3,416||7,106|
|Sales taxes payable||5,200||6,560|
|Due to Mr. Hiebert||10,000||5,000|
|Mortgage and notes payable (current maturities)||44,000||52,000|
Bottle-Up, Inc. Statement of Change in Retained Earnings, for the Current Year
Ended December 31 (Problem C:11-63)
|Balance, January 1||$330,000a|
|Plus: Net income||$133,362|
|Minus: Dividends||(70,000 ) 63,362|
|Balance, December 31||$393,362|
a The January 1 accumulated adjustments account balance is $274,300.
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