TAX PROBLEMS

Tax Return Problem       (  1020 S  )              chapter 12

John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners, respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303. Premium's Selection was made on January 15, 2009, its date of incorporation. The following information was taken from the company's 2015 income statement.

Interest income

$   100,000 

Gross sales receipts

2,410,000 

Beginning inventory

9,607 

Direct labor

(203,102)

Direct materials purchased

(278,143)

Direct other costs

(249,356)

Ending inventory

3,467 

Salaries and wages

(442,103)

Officers' salaries ($75,000 each to Parsons and Smith)

(150,000)

Repairs

(206,106)

Depreciation expense, tax and book

(15,254)

Interest expense

(35,222)

Rent expense (operating)

(40,000)

Taxes

(65,101)

Charitable contributions (cash)

(20,000)

Advertising expenses

(20,000)

Payroll penalties

(15,000)

Other deductions

(59,899)

Book income

704,574 

A comparative balance sheet appears below.

                                                                                                January 1,2015     December 31,2015

Cash                                                                                               $47,840                  $ ?

Account receivable                                                                          93,100              123,104

Inventories                                                                                          9,607               3,467

Prepaid expenses                                                                           8,333                  17,582

Building and equipment                                                               138,203               185,348

Accumulated depreciation                                                (84,235)                     (?)

Land                                                                                                  2,000                  2,000

Total asset                                                                                     $214,848                $844,422

Account payable                                                                             $42,500                $ 72,300                                                                              

Notes payable   (less than 1 year)                                                    4,500                     2,100

Notes payable   (more than 1 year)                                                 26,700                   24,300                                                        

Capital stock                                                                                     30,000                  30,000

Retained earnings                                                                            111,148                     ?

Total liabilities and capital                                                             $214,848                $844,422

Premium's accounting firm provides the following additional information.

Distributions to shareholders

$100,000

Beginning balance, Accumulated adjustments account

$111,148

Using the preceding information, prepare a complete Form 1120S and Schedule K–1s for John Parsons and George Smith, 5607 20th Street, Cut and Shoot, TX 77303. Do not complete the Form 4562. If any information is missing, make realistic assumptions.

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  • Elite2
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