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PART I – Tax Return #1, Corporate Return
 
Background

Jane Collier, James Taye, and Steve Allwine each own one-third of the common stock of Tasty Treats and Beverages. The corporation was incorporated on April 3, 2004. It has only one class of stock outstanding and operates as a C corporation for tax purposes. Tasty Treats and Beverages caters kid-friendly social events.

  • Located at 1215 Blue Horizon, Dallas, TX 12234.
  • Employer Identification Number is 12-34567890.
  • Business activity is catering food. Its business activity code is 722300.
  • The shareholders also work as officers for the corporation as follows:
    • Jane is the chief executive officer and president (Social Security number 242-62-5786).
    • James is the executive vice president and chief operating officer (Social Security number 563-58-8923).
    • Steve is the vice president of finance (Social Security number 575-58-1572).
  • All officers devote 100% of their time to the business
  • All officers are U.S. citizens.
  • Use the accrual method of accounting and have a calendar year-end.
  • Four equal estimated tax payments of $28,000 each quarter. Its tax liability last year was $85,000.
  • If it has overpaid its federal tax liability, the corporation would like to receive a refund.
  • Dividend paid of $20,000 to its shareholders on October 1. The Corporation had ample earnings and profits (E&P) to absorb the distribution.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Statements

Tasty Treats and Beverages, Inc.

Income Statement

For year ended December 31, 2013

 

 

 

Revenue from sales

 

                               1,500,000

Sales returns and allowances

 

                                   (25,000)

Cost of goods sold

 

                                 (325,000)

Gross profit from operations

 

                               1,150,000

 

 

 

Other Income:

 

 

Capital loss

 

                                     (7,500)

Dividend income

 

                                     15,000

Interest income

 

                                     12,000

Gross income

 

                               1,169,500

 

 

 

Expenses:

 

 

Compensation

 

                                 (750,000)

Depreciation

 

                                   (12,000)

Bad debt expense

 

                                     (7,800)

Meals and entertainment

 

                                     (3,000)

Maintenance

 

                                     (2,500)

Property taxes

 

                                   (10,000)

State income taxes

 

                                   (30,000)

Other taxes

 

                                   (11,000)

Rent

 

                                   (28,000)

Interest

 

                                     (7,300)

Advertising

 

                                     (6,200)

Professional services

 

                                     (5,000)

Employee benefits

 

                                     (8,000)

Supplies

 

                                     (2,500)

Other expenses

 

                                     (1,750)

Total expenses

 

                                 (885,050)

 

 

 

Income before taxes

 

                                   284,450

Federal income tax expense

 

                                     96,713

Net income after taxes

 

                                   187,737

 

 

 

 

 

 

Tasty Treats and Beverages, Inc.

Balance Sheet

December 31, 2013

 

 

 

 

 

ASSETS

 

 January 2013

 

December 2013

Cash

 

                                                       175,000

 

                                             190,000

Accounts Receivable

 

                                                         63,000

 

                                                54,000

Allowance for doubtful accounts

 

                                                         (8,000)

 

                                                (7,000)

Inventory

 

                                                       225,000

 

                                             275,000

US government bonds

 

                                                         30,000

 

                                                25,000

State and local bonds

 

                                                         50,000

 

                                                50,000

Investments in stock

 

                                                       325,000

 

                                             335,000

Fixed assets

 

                                                       475,000

 

                                             485,000

Accumulated depreciation

 

                                                     (198,000)

 

                                           (215,000)

Other assets

 

                                                         11,000

 

                                                12,000

Total assets

 

                                                   1,148,000

 

                                          1,204,000

 

 

 

 

 

 

Liabilities and Stockholder's Equity

 

 

 

 

Accounts payable

 

                                                       225,000

 

                                             200,000

Other current liabilities

 

                                                       135,000

 

                                             55,000

Other liabilities

 

                                                         75,000

 

                                                68,263

Capital stock

 

                                                       250,000

 

                                             250,000

Retained earnings

 

                                                       463,000

 

                                             630,737

Total liabilities and stockholder's equity

 

                                                   1,148,000

 

                                          1,204,000

 

 

 

 

 

 

Additional Information

  • Inventory-related purchases during 2013 were $375,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of §263A do not apply.
  • Of the $12,000 interest income, $1,500 was from a City of Dees bond that was used to fund public activities (issued in 2011), $1,750 was from an Border city bond used to fund private activities (issued in 2004), $2,500 was from a U.S. Treasury bond, and the remaining $6,250 was from a money market account.
  • Dividend income came from ABC Inc. Owned 10,000 shares of the stock in ABC Inc. at the beginning of the year. This represented 10 percent of outstanding stock.
  • On September 1, 2013, the corporation sold 1,000 shares of its ABC stock for $15,000. It had originally purchased these shares on June 13, 2006, for $22,500. After the sale, the Corporation owned 9 percent of ABC.
  • compensation is as follows:
    • Jane $175,000
    • James $150,000
    • Steve $150,000
    • Other $275,000
  • The Corporation wrote off $10,000 in accounts receivable as uncollectible during the year.
  • Regular tax depreciation was $28,000. None of the depreciation should be claimed on Form 1125A.
  • The $7,300 interest expense was from a business loan.
  • Other expenses include $3,000 for premiums paid on term life insurance policies for which Tasty Treats and Beverages, Inc. is the beneficiary. The policies cover the lives of Jane, James, and Steve.

 

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