Assignment: Comprehensive Tax Retur
C CORPORATION (FORM 1120)
On November 1, 2006, Janet Morton and Kim Wang formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows:
• Pet Kingdom's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211.
• The employer identification number is 11-1111111, and the principal business activity code is 453910.
• Janet and Kim each own 50% of the common stock; Janet is president and Kim is vice president of the company. No other class of stock is authorized.
• Both Janet and Kim are full-time employees of Pet Kingdom. Janet's Social Secu-
rity number is 123-45-6789, and Kim's Social Security number is 987-65-4321.
• Pet Kingdom is an accrual method, calendar year taxpayer. Inventories are deter-mirsing FIFO and the lower of cost or market method. Pet Kingdom uses the strafgElline method of depreciation for hook purposes and accelerated deprecia-tion (MACRS) for tax purposes.
• During 2015, the corporation distributed cash dividends of $250,000.
Pet Kingdom's financial statements for 2015 are shown below.
Income Statement
|
Income
|
|
|
|
|
Gross sales
|
|
|
$ 5,750,000
|
|
Sales returns and allowances
|
|
|
(200,000)
|
|
Net sales
|
|
|
$ 5,550,000
|
|
Cost of goods sold
|
|
|
(2,300,000)
|
|
Gross profit
|
|
|
$ 3,250,000
|
|
Dividends received from stock investments in less-than-20%owned U.S. corporations
|
|
|
43,750
|
|
Interest income:
|
|
|
|
|
State bonds
|
$ 15,000
|
|
|
|
Certificates of deposit
|
20,000
|
|
35,000
|
|
Total income
|
|
|
$ 3,328,750
|
|
Expenses
|
|
|
|
|
Salaries-officers
|
|
|
|
|
Janet Morton
|
$262,500
|
|
|
|
Kim Wong
|
262,500
|
$525,000
|
|
|
Salaries-clerical and sales
|
|
725,000
|
|
|
Taxes (state, local, and payroll)
|
|
238,000
|
|
|
Repairs and maintenance
|
|
140,000
|
|
|
Interest expense:
|
|
|
|
|
Loan to purchase state bonds
|
$ 9,000
|
|
|
|
Other business loans
|
207,000
|
216,000
|
|
|
Advertising
|
|
58,000
|
|
|
Rental expense
|
|
109,000
|
|
|
Depreciation*
|
|
106,000
|
|
|
Charitable contributions
|
|
38,000
|
|
|
Employee benefit programs
|
|
60,000
|
|
|
Premiums on term life insurance policies on lives of Janet Morton and
|
|
|
|
|
Kim Wong; Pet Kingdom is the designated beneficiary
|
|
40,000
|
|
|
Total expenses
|
|
|
(2,255,000)
|
|
Net income before taxes
|
|
|
$ 1,073,750
|
|
Federal income tax
|
|
|
(356,023)
|
|
Net income per books
|
|
|
$ 717,727
|
* Depreciation for tax purposes is 5136,000. You are not provided enough detailed data to complete a Form 4562 (depreciation). If you solve this problem using H&R BLOCK Tax Software, enter the amount of depreciation on line 20 of Form 1120.
Balance Sheet
|
Assets
|
January 1, 2015
|
December 31, 2015
|
|
Cash
|
$ 1,200,000
|
$ 1,037,750
|
|
Trade notes and accounts receivable
|
2,062,500
|
2,147,000
|
|
Inventories
|
2,750,000
|
3,030,000
|
|
Stock investment
|
1,125,000
|
1,125,000
|
|
State bonds
|
375,000
|
375,000
|
|
Certificates of deposit
|
400,000
|
400,000
|
|
Prepaid Federal tax
|
-0-
|
3,977
|
|
Buildings and other depreciable assets
|
5,455,000
|
5,455,000
|
|
Accumulated depreciation
|
(606,000)
|
(712,000)
|
|
Land
|
812,500
|
812,500
|
|
Other assets
|
140,000
|
128,500
|
|
Total assets
|
$13,714,000
|
$13,802,727
|
|
Liabilities and Equity
|
January 1, 2015
|
December 31, 2015
|
|
Accounts payable
|
$ 2,284,000
|
$ 1,975,000
|
|
Other current liabilities
|
175,000
|
155,000
|
|
Mortgages
|
4,625,000
|
4,575,000
|
|
Capital stock
|
2,500,000
|
2,500,000
|
|
Retained earnings
|
4,130,000
|
4,597,727
|
|
Total liabilities and equity
|
$13,714,000
|
$13,802,727
|
During 2015, Pet Kingdom made estimated tax payments of $90,000 each quarter to the IRS. Prepare a Form 1120 for Pet Kingdom for tax year 2015. Suggested software: H&R BLOCK Tax Software.