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"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.
"TAX FORM/RETURN PREPARATION PROBLEMC: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 taxidentification number is 38-1507869. Its address is 1234 Hill Street, Gainesville, FL32607. 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 ornamentalglass bottles. It made no changes to its inventory costing methods this year. It uses the specificidentification 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. Bothindividuals materially participate in Bottle-Up’s single activity. Herman Hiebert is the taxmatters person. Financial statements for Bottle-Up for the current year are shown in TablesC:11-2 through C:11-4. Assume that Bottle-Up’s business qualifies as a U.S. productionactivity and that its qualified production activities income is $90,000. The S corporationuses the small business simplified overall method for reporting these activities (see discussionfor Line 12d of Schedules K and K-1 in the Form 1120S instructions). Prepare a currentyear S corporation tax return for Bottle-Up, showing yourself as the paid preparer._ TABLE C:11-2Bottle-Up, Inc. Income Statement for the Year Ended December 31 of the CurrentYear (Problem C:11-63)Sales $2,500,000Returns and allowances (15,000 )Net sales $2,485,000Beginning inventory $ 102,000Purchases 900,000Labor 200,000Supplies 80,000Utilities 100,000Other manufacturing costs 188,000 aGoods available for sale $1,570,000Ending inventory (96,000 ) 1,474,000 bGross profit $1,011,000Salaries c $ 451,020Utilities expense 54,000Depreciation (MACRS depreciation is $36,311) 11,782Automobile and truck expense 26,000Office supplies expense 9,602Advertising expense 105,000Bad debts expense 620Rent expense 30,000Interest expense d 1,500Meals and entertainment expense 21,000Selling expenses 100,000Repairs and maintenance expense 38,000Accounting and legal expense 4,500Charitable contributions e 9,000Insurance expense f 24,500Hourly employees’ fringe benefits 11,000Payroll taxes 36,980Other taxes 2,500Penalties (fines for overweight trucks) 1,000 (938,004)Operating profit $ 72,996Other income and losses:Long-term gain on sale of capital assets $ 48,666gSec. 1231 loss (1,100) hInterest on U.S. Treasury bills 1,200Interest on State of Florida bonds 600Dividends from domestic corporations 11,600Investment expenses (600) 60,366Net income 133,362a Total MACRS depreciation is $74,311. Assume that $38,000 of depreciation has been allocated to cost of sales forboth book and tax purposes so that the book and tax inventory and cost of sales amounts are the same. The AMTdepreciation adjustment on personal property is $9,000.b The cost of goods sold amount reflects the Uniform Capitalization Rules of Sec. 263A. The appropriate restatementshave been made in prior years.c Officer salaries of $120,000 are included in the total. All are employer’s W-2 wages.d Investment interest expense is $500. All other interest expense is trade- or business-related. None of the interestexpense 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._ TABLE C:11-3Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year(Problem C:11-63)January 1 December 31Assets:Cash $ 15,000 $116,948Accounts receivable 41,500 45,180Inventories 102,000 96,000Stocks 103,000 74,000Treasury bills 15,000 16,000State of Florida bonds 10,000 10,000Building and equipment 374,600 375,000Minus: Accumulated depreciation (160,484) (173,100)Land 160,000 190,000Total $660,616 $750,028Liabilities and equities:Accounts payable $ 36,000 $ 10,000Accrued salaries payable 12,000 6,000Payroll taxes payable 3,416 7,106Sales taxes payable 5,200 6,560Due to Mr. Hiebert 10,000 5,000Mortgage and notes payable (current maturities) 44,000 52,000Long-term debt 210,000 260,000Capital stock 10,000 10,000Retained earnings 330,000 393,362Total $660,616 $750,028_ TABLE C:11-4Bottle-Up, Inc. Statement of Change in Retained Earnings, for the Current YearEnded December 31 (Problem C:11-63)Balance, January 1 $330,000aPlus: Net income $133,362Minus: Dividends (70,000 ) 63,362Balance, December 31 $393,362a The January 1 accumulated adjustments account balance is $274,300.
