EXTRA CREDIT TAX RETURN - C CORPORATION
Brubeck, Inc. is a calendar year C corporation that uses the accrual method of accounting. Dave Brubeck owns all the outstanding stock of Brubeck, Inc. The business of the corporation is the manufacturing of plastic toys. Dave is the only officer of the corporation and is paid $110,000 salary per year (included in salaries expense on the trial balance).
During the year, Brubeck, Inc. made distributions to Dave with respect to Dave's stock as follows: $40,000 cash on 3/1/16 and $40,000 cash on 9/1/16. The corporation has sufficient e & p to cover these distributions.
During 2015, Brubeck, Inc. incurred a net capital loss. ($1,000) of this net capital loss is left to carry forward to 2016.
Total MACRS depreciation for 2016 is $20,000. All depreciable assets were placed in service in previous years.
During the current tax year, the corporation made two sales of stock held for investment purposes:
Amt. realized Adj. basis Date acq Date sold
70 shares Boeing, Inc. 45,000 43,000 10/30/15 8/24/16
10 shares ATT, Inc. 33,000 46,000 1/4/05 6/1/16
Assume that the book values of the Boeing and ATT stock are equal to the tax adjusted bases.
During the current year, on 6/1/16, the corporation sold a building used in its manufacturing business. The selling price of the building was $50,000. It originally cost $42,000 in 2008 and Brubeck, Inc. has correctly deducted $7,000 of tax depreciation on it. Assume that the book value of the building is equal to the tax adjusted basis.
All of the corporation's current year dividend income was received from the Boeing and ATT stock. In both cases, less than 1 percent of the outstanding stock is owned by Brubeck, Inc.
Cost of sales consists of the following:
Beginning inventory 100,000
Purchases 295,000
Ending Inventory - 120,000
275,000
Brubeck, Inc. paid federal estimated income taxes of $22,000 for the tax year.
Assume Brubeck does not qualify for any Sec. 199 qualified domestic production deduction.
Financial statement information for Brubeck, Inc. is provided below.
The 2016 year end trial balance for the corporation is as follows:
Dr Cr
Cash 42,000
Inventory 120,000
Property and Equipment 160,000
Accumulated depreciation 76,000
Accounts payable 2,000
Common Stock 50,000
Retained Earnings 137,000
Sales 600,000
Dividend Income 10,000
Tax exempt interest income 1,000
Cost of sales 275,000
Salaries expense 175,000
Rent expense 25,000
Office expenses 16,500
Depreciation expense 19,000
Charitable contributions 17,500
Gains/Losses on asset disposals 4,000
Federal income tax expense 30,000 _______
880,000 880,000
The 2015 year end balance sheet for Brubeck, Inc.:
Cash 5,000 Accounts payable 40,000
Inventory 100,000 Common stock 50,000
Investments 78,000 Retained earnings 217,000
Property & Equip 188,000
Less: Accum deprec (64,000) _______
307,000 307,000
Using this tax and financial information, prepare the 2016 federal income tax return of Brubeck, Inc.