CLC - Entity Tax Return

Topic 7 Entity Tax Return: Figures C:11-61, Option 1

Bottle Up, Inc. Problem C:11-61

Form 1120S, Page 1

· Total income, line 6: $1,011,000

· Total deductions, line 20*: $938,533

· You should have values on the following lines: 1a, 1b, 1c, 2, 3, 6, 7, 8, 9, 10, 11, 12, 13, 14, 16, 18, 19, 20, and 21. Do not complete lines 22-27.

*Attach a schedule (i.e., a Word document) to the tax return showing the items and amounts for line 19, other deductions.

· Be sure you are using Form 1120S and not Forms 1120 or 1065.

· Remember to use 2020 tax forms. Points will be deducted for 2019 or 2021 forms. Forms can be located at www.irs.gov. Use the “find forms” or search feature. Depending on the time of year, the 2020 forms may be in the “prior year” section.

Form 1120S, Pages 2 and 3 (Schedule B)

· Answer lines 1-2 based on the information provided in the problem. Hint: Line 2a should be words to describe the business, not a numeric value.

· Answer no to all items 3-11. Complete Part B on page 3 as well. If a field does not need to be completed, leave it blank. Points will be deducted for failing to complete this schedule.

· Continue Schedule B on page 3, answer No to items 12-15.

Form 1120S, pages 3 and 4 (i.e., Schedule K)

· You should have amounts on the line numbers: 1, 4, 5a, 5b, 8a, 9, 12a, 12b, 12d (include type of item), 15a, 16a, 16c, 16d, 17a, 17b, and 18. Note: line 1 should be the same as line 21 from page 1.

· Line 17a should be the investment income items added together, as applicable. Review the items on page 3 of Schedule K to determine the amounts to include. For line 17b, the amount is provided in the textbook problem.

· Line 18 should be $122,733.

Form 1120S, Page 4 (Schedule L)

· Schedule L – This is the balance sheet copied directly from the case in the textbook. Remember the assets should equal the liabilities and capital. Complete the values for the beginning and end of the year.

Note: Use column (a) for any items where you may have subtotals, such as net accounts receivable or plant assets. For example, line 10a should be $375,434 in column (a) and line 10b should be $161,318 also in column (a) with the net result reported on line 10b in column (b) of $214,116. The items from column (b) are added together (or subtracted, as applicable) to get your total assets, liabilities and equity.

Form 1120S, Page 5 (Schedules M-1 and M-2)

· Schedule M-1 (optional and for extra points if permitted by faculty member) – Use the information from the problem to complete this section. Line 8 should be the same net income you report on page 3, line 18. Line 4 should be $147,862.

· Do not complete Schedule M-2.

Form 1120S, Schedule D

Complete the Schedule D for Form 1120S. Use the boxes on line 10 to report the information applicable to the capital transaction, as provided in the problem.

Form 1120S, Form 1125-A

· You should have values on lines 1, 2, 3, 5, 6, 7, and 8. Answer items 9a, 9e, and 9f only. Note: FIFO, LIFO, etc. should not be an inventory method listed for line 9a (iii).

· The information to calculate cost of goods sold is found in the problem. Be sure not to double count any expenses you report on 1125-A on page 1 of Form 1120S.

Form 1120S, Form 4797

· Report the sale of the Sec. 1231 asset on this form in Part I.

Form 1120S, Schedule K-1

· You should have amounts in the same boxes as you reported on the Schedule K (pages 3 and 4 of Form 1120S).

· For lines 12and 16, include both the amounts and the applicable code. The codes are located on page 2 of the Schedule K-1 form. Line 17 section is not required.

· You are only required to prepare the Schedule K-1 for Herman. It is okay to ignore the second shareholder for purpose of this project.

· Herman is an individual. He has owned 50% of the S corporation interest all year. He owns 500 shares, all year. See the additional tax return project instructions for his address and social security number.

Herman and Rebecca Hiebert

Form 1040

Adjusted gross income, line 11: $350,417 Taxable income, line 15: $301,030a Amount overpaid, line 36: $566 (use 2020 tax tables)b & c

a For purposes of this assignment, calculate the Qualified Business Income Deduction. There is a brief discussion on this concept in the Individual Chapter 2 and Corporate Chapter 9. Refer to the instructions for Form 8995 to assist in the calculation of this item. b Ignore the 3.8% net investment income tax for high-wealth individuals. c Remember to take into consideration the items subject to the capital gain tax preference rate when calculating the total tax liability.

Schedule A

· For line 9, include the investment interest expense from the S corporation (see Schedule K-1).

· On line 11, remember to include the cash contributions from both the taxpayer and the amount allocated from the S corporation (see Schedule K-1).

· Line 17: $42,250

Form 8949

· Line 2h (Part II), $24,000

Schedule D

· Line 15, $38,333

Schedule E

· Line 32, $36,234

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