Fun Time Umbrella Inc. is owned by Roland M. Fish and his wife, Fancy J. Fish. The corporation manufactures a small umbrellas for cocktails (business...

Fun Time Umbrella Inc. is owned by Roland M. Fish and his wife, Fancy J. Fish. The corporation manufactures a small umbrellas for cocktails (business activity code number 339900). The corporation has reported positive financial and taxable incomes since inception. The company is located at 200 Mixer Way, Boca Raton, Florida 33431. The company's employer identification number is 98-7654321, and the calendar year is used for tax purposes. The date of incorporation was February 9, 2007.

Roland M. Fish (social security number 123-45-6789) is an 81 percent shareholder and president of the company. Fancy J. Fish (social security number 111-11-1111) is a 19 percent shareholder and vice president of the company. Both persons devote 100 percent of their time to the corporation. Roland's compensation is $187,154 per year, and Fancy's compensation is $60,899 per year.

The corporation is not a personal holding company. While the corporation is a 'closely-held C corporation,' it does not engage in activities to which the at-risk or passive activity loss limitations apply.

The corporation files its tax return on the accrual method. Inventory has been consistently valued at Cost under the FIFO method using the full absorption procedure. Inventory capitalization rules of Internal Revenue Code Section 263A do not apply due to the 'small business exception' (average annual gross receipts for the three preceding taxable years do not exceed $10 million). The accounting records are computerized.

ADDITIONAL INFORMATION

1. Fun Time Umbrella, Inc. made estimated tax payments attributable to 2015 of $30,111. The corporation also had a credit from an overpayment of its prior year Federal income taxes of $3,889 that it elected to apply against its 2015 tax liability. Apply any overpayment to 2016.

2. Ignore state income taxes.

3. Dividend income is from the following sources:

Big Time Fun (Fun Time owns 75% of all outstanding stock).................. $7,578

IBM Corp.(owns 12% of all outstanding stock) ..................................... $3,120

Voltage, Inc. (owns 25% of all outstanding) ................................... $17,001

Total ...................................................................................................... $27,699

4. An analysis of the Allowance for Doubtful Accounts reveals:

Balance, 01/01/15 ...................................................................................................... $38,111

2015 Transactions--

Provision for bad debts ............................................................................... $4,554

Recoveries of bad debts .............................................................................. -0-

Accounts written off as uncollectible ......................................................... (2,877)

Balance, 12/31/16 ................................................................................. $39,788

5. Goodwill of $28,425 arose on purchase of another business on 01/31/13. Amortization is not being taken for financial purposes.

6. Assume that deductions for tax depreciation (i.e., Modified Accelerated Cost Recovery) for the year total $120,787. For this practice set do not complete Form 4562 (Depreciation and Amortization).

7. $94,530 of the Accrued Wages as of 12/31/14 were paid by 3/15/15. $92,547 of the Accrued Wages as of 12/31/15 were paid by 3/15/16. The M-1 should be adjusted through the Wage Expense. 8. Contributions included:

Salvation Army ............................................................................................ 4,123

Committee to Elect Donald Trump, President............................................ 2,000

Florida Food Bank ..................................................................................... 2,100

Total ...................................................................................................... $8,223

All contributions were paid in cash during the year except for the Food Bank contribution which was pledged by the corporation (i.e., approved by the Board of Directors) on December 27, 2014 and paid on March 4, 2015.

In addition to the cash contributions above Fun Time Umbrella, Inc. donated inventory to a local charity. The fair market value of the inventory was 1,500 and the cost basis was 400.

9. Included in interest income is $1,050 from State of Florida General Obligation Bonds held throughout the current year. These bonds are included in the marketable securities account.

10. On 05/07/15 the corporation sold 2,580 shares of Voltage, Inc. common stock for $10,877. The stock had been purchased on 04/30/10 for $12,965.

11. Form 4626 (Alternative Minimum Tax-Corporations) must be included in the return. For that purpose, assume the adjustment for depreciation of tangible property placed in service after 1986 (Form 4626, Line 2a) is a $65,701 positive adjustment. Assume the Adjusted Current Earnings (ACE) Adjustment on Line 4e is $-0-. [This assumption removes the ACE adjustment from this practice set].

12. Disregard any penalty on underpayment of estimated tax.

13. Assume that compensation of officers and other salaries and wages do not relate to production activities. This assumption removes the Domestic Production Activities deduction from this practice set.

REQUIRED

From the above information, prepare Fun Time Umbrella, Inc.'s 2015 Federal income tax return (Form 1120), including all needed supporting statements, schedules, and forms. Unless otherwise noted, assume Fun Time Umbrella, Inc. follows the policies of making all elections to minimize its current income taxes and, to the extent possible, of conforming procedures for financial and tax accounting. Round amounts to the nearest dollar. If additional information is needed, make realistic assumptions and fill in all required data. The forms that you will need to complete include Forms 1120, 1125-A, 1125-E, 4626, Schedule D and Schedule G. These forms can be found at http://apps.irs.gov/app/picklist/list/formsPublications.html. You will complete these forms in the PDF format. Just type or neatly write in the amounts on the various lines and then print those forms off when complete. I will not accept electronic documents. Instructions to the Forms can be very beneficial in the preparation of the tax forms

Fun Time Umbrella Inc

Balance Sheet

For Year Ending Dec 31 2015

Assets Beg. of Year Ending of Year

Cash & marketable securities 412,985 398,774

Accounts Receivables 178,954 187,954

Allowance for Doubtful Accounts (38,111) (39,788)

Inventory 315,874 305,111

Total Current Assets 869,702 852,051

Machinery, Building and Land:

Machinery 458,784 475,880

Less; Accumulated Depreciation (175,845) (247,215)

Building 575,998 575,998

Less: Accumulated Depreciation (136,557) (151,326)

Land 98,547 98,547

Total Equipment, Building and Land 820,927 751,884

Other Assets:

Goodwill 28,425 28,425

TOTAL ASSETS 1,719,054 1,632,360

LIABILITIES AND SHAREHOLDER EQUITY

Current Liabilities:

Accounts Payable $ 154,787 $ 145,987

Accrued Wages 124,530 112,547

Note Payable (less than one year) 98,541 99,897

Total Current Liabilities $ 377,858 $ 358,431

Notes Payable (one year or more) 329,028 228,004

Total Liabilities $ 706,886 $ 586,435

Common Stock (200,000 shares authorized, 19,702

shares issued and outstanding, $10 par) $ 98,754 $ 98,754

Additional Paid in Capital 589,445 589,445

Retained Earnings 323,969 357,726

Total Shareholders' Equity $ 1,012,168 $ 1,045,925

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,719,054 $ 1,632,360

STATEMENT OF RETAINED EARNINGS

Beginning Retained Earnings $ 323,969

Net Income for the Year 98,625

Dividend Paid in Cash (64,868)

Ending Retained Earnings $ 357,726

FUN TIME UMBRELLA, INCOME STATEMENT

For year ending Dec 31, 2015

Revenue:

Sales $ 4,578,936

Returns & Allowance (29,887)

Net Sales 4,549,049

Purchases (3,329,878)

Gross Profits $ 1,219,171

Operating Expenses

Officer Wages $ 248,053

Wage Expense 512,450

Rent Expense 36,000

Interest Expense 58,331

Penalty Expense 1,750

Advertising Expense 10,589

Contributions 8,223

Bad Debt Expense 4,554

Depreciation Expense 125,987

Officer's Life Insurance Premiums 11,125

Payroll Taxes 64,993

Repairs and Maintenance 10,987

Meals & Entertainment 5,148

Miscellaneous Expense 15,997

Total Operating Expenses $ (1,114,187)

  Net Income from Operations $ 104,984

Other Income and Loss:

Dividend Income $ 27,699

Interest Income 3,150

Loss on the Sale of Stock (2,088) 28,761

    Net Income (Loss) before Income Tax $ 133,745

Federal Income Tax Expense (35,120)

Net Income $ 98,625

I am having difficulty with the line 11 on the form 1120