Question :

Bottle-Up, Inc., was organized on 8^th January, 2001, and made its S election on 24^th January, 2000. The required 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 technique of accounting , and the first-in, first-out (FIFO) inventory technique. Bottle-Up manufactures ornamental glass bottles. It made no modification to its inventory costing methods this year. It uses the specific identification technique for bad debts for book and tax purposes. Herman Hiebert and Melvin Jones own 500 shares each. Both individuals significantly participate in Bottle-Up's single activity. Herman Hiebert is the tax matters person. Financial statements for the existing year are shown in tables C:11-2 thru C:11-4. Consider that Bottle-Up's business qualifies as a U.S. production activity and that its capable production activities income is $90,000. The S corporation uses the small business simplified overall technique for reporting these activities. Purpose a 2010 S corporation tax return for Bottle-Up.

Table: C:11-2 INCOME STATEMENT

Sales $2,500,000

Returns and allowances (15,000)

----------------

Net Sales $2,485,000

Starting Inventory $102,000

Purchases 900,000

Labor 200,000

Supplies 80,000

Utilities 100,000

Other manufacturing costs 188,000

------------

Goods available for sale $1,570,000

Ending Inventory (96,000) 1,474,000

--------------- -------------

Gross Profit $1,011,000 Utilities expense

Salaries $451,000

Utilities expense 54,000

Depreciation 11,782

(MACRS depreciation is $36,311)

Automobile and truck expense 26,000

Office supplies expense 9,602

Advertising expense 105,000

Bad debts expense 620

Rent expense 30,000

Interest expense 1,500

Meals and entertainment expense 21,000

Selling expense 100,000

Repairs and maintenance expense 38,000

Accounting and legal expense 4,500

Charitable contributions 9,000

Insurance expense 24,500

Hourly employees fringe benefits 11,000

Payroll taxes 36,980

Other taxes 2,500

Penalties (fines for overweight trucks) 1,000 (938,004)

----------- --------------

Operating profit $ 72,996

Other income and losses

Long-term gain on sale of capital

assets $48,666

Sec. 1231 loss (1,100)

Interest on U.S. Treasury bills 1,200

Interest on State of florida bonds 600

Dividends from domestic operations 11,600

Investment expenses (600) 60,366

-------------- ------------

Net Income $133,362

=======

*Total MACRS depreciation is $74,311. Suppose that $38,000 of depreciation has been allocated to cost of sales for both tax and book purposes so that the book inventory and cost of sales amounts are the same. The AMT depreciation adjustment on personal property is $9,000.

*The cost of goods sold amount reflects the Uniform Capitalization Rules of Sec. 263A. The suitable restatements have been made in prior years.

*Officer salaries of $120,000 are included in the total. All are employers W-2 wages.

*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.

*The corporation made every contribution in cash to qualifying charities.

*Insurance expense adds $3,000 of premiums paid for policies on lives of corporate officers. Bottle-Up is the receiver for both policies.

*The corporation acquired the capital assets on March 3, 2008 for $100,000 and sold them on September 15, 2010, for $148,666.

*The corporation acquired the Sec. 1231 property on June 5, 2009 for $10,000 and sold it on 21^st December, 2010 for $8,900.

January 1 December 31

Assets:

Cash                                                $15,000                         $116,948

Accounts receivable                      41,500                           45,180

Inventories                                      102,000                         96,000

Stocks                                               103,000                         74,000

Treasury bills                                   15,000                           16,000

State of Florida bonds                    10,000                           10,000

Building and equipment                 374,600                        375,000

Minus: Accumulated depreciation (160,484)                    (173,100)

Land                                                   160,000                         190,000

-------------- ---------------

Total                                                    $660,616                            $750,028

Liabilities and equities:

Accounts payable                               $36,000                              $10,000

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

Long-term debt                                    210,000                                 260,000

Capital stock                                         10,000                                   10,000

Retained earnings                                330,000                                 393,362

--------------- ---------------

Total                                                       $660,616                                $750,028

Table: C: STATEMENT OF CHANGE IN RETAINED EARNINGS

Balance January 1 $330,000

Plus: Net income $133,362

Minus: Dividends (70,000)

-------------

63,362

------------------

Balance, December 31 $393,362

==========

Required:

Purpose a 2010 S corporation tax return (Form 1120S), including the subsequent additional schedules and forms: Schedule D, Form 4562, and Schedule K-1.