Harrell and Smith, Inc., 204 Ambulance Street, Anywhere, CA 92345, is a corporation (EIN 57-1234567) formed on January 1, 2010. Information concerning the corporation and its two shareholders follows. It uses tax/cash basis accounting, did not pay dividends in excess of earnings and profits, has no foreign shareholders, is not publicly traded, and has no NOL carrybacks.
Bruce Harrell (SSN 412-34-5670), 1018 Lexington Downs, Anywhere, CA 92345, is a 60% shareholder. Della Smith (SSN 412-34-5671), 4564 Yates Road, Anywhere, CA 92345, is a 40% shareholder. Bruce received a dividend of $60,000, and Della received a dividend of $40,000. Both of these dividends are in addition to their salaries.
HARRELL AND SMITH, INC.
Comparative Balance Sheet
As of December 31, 2014, and December 31, 2015
12/31/14 12/31/15
Assets
Cash $ 39,955 $ 45,459
Investments 258,456 169,125
Office equipment 225,000 310,759
Accumulated depreciation (equipment) (156,000) (165,379)
Building 491,200 491,200
Accumulated depreciation (building) (37,232) (49,826)
Total assets $821,379 $801,338
Liabilities and equity
Notes payable $353,600 $335,458
Common stock 10,000 10,000
Retained earnings 457,779 455,880
Total liabilities and equity $821,379 $801,338
HARRELL AND SMITH, INC.
Income Statement
For the Year Ending December 31, 2015
Revenue
Consulting income $866,689
Interest income 4,231
Rental income 9,000
Dividend income from less-than-20%-owned domestic corporation(qualified) 8,234
Long-term capital losses (8,200)
Total revenue $879,954
Expenses
Salaries and wages (nonowners) $253,000
Officers' salaries
Harrell 225,000
Smith 150,000
Depreciation 21,973
Interest expense 20,127
Taxes and licenses 24,051
Utilities 15,500
Travel 11,850
Meals and entertainment (100%) 12,452
Auto 18,500
Insurance (health) 7,000
Accounting and legal 6,450
Repairs 3,200
Charitable contributions 12,000
Payroll penalties 750
Total expenses $781,853
Net income $ 98,101
Prepare Form 1120, pages 1- 5, for Harrell and Smith, Inc. Schedule D and Form 4562 can be omitted (the information given is not sufficient to complete these forms).
I am having problems figuring out the answer to line 26 on the 1120 IRS form.