For Kate

TABLE C:11-2 Bottle-Up, Inc. Income Statement for the Year Ended December 31 of the Current Year (Problem C:11-63)

Sales		$2,500,000
Returns and allowances		(15,000)
Net sales		$2,485,000
Beginning inventory	$   102,000
Purchases	900,000
Labor	200,000
Supplies	80,000
Utilities	100,000
Other manufacturing costs	188,000 a
Goods available for sale	$1,570,000
Ending inventory	(96,000)	1,474,000 b
Gross profit		$1,011,000
Salaries c	$   451,020
Utilities expense	54,000
Depreciation (MACRS depreciation is $36,311)	11,782
Automobile and truck expense	26,000
Office supplies expense	9,602
Advertising expense	105,000
Bad debts expense	620
Rent expense	30,000
Interest expense d	1,500
Meals and entertainment expense	21,000
Selling expenses	100,000
Repairs and maintenance expense	38,000
Accounting and legal expense	4,500
Charitable contributions e	9,000
Insurance expense f	24,500
Hourly employees’ fringe benefits	11,000
Payroll taxes	36,980
Other taxes	2,500
Penalties (fines for overweight trucks)	1,000	(938,004)
Operating profit		$ 72,996
Other income and losses:
Long-term gain on sale of capital assets	$    48,666 g
Sec. 1231 loss	(1,100) h
Interest on U.S. Treasury bills	1,200
Interest on State of Florida bonds	600
Dividends from domestic corporations	11,600
Investment expenses	(600)	60,366
Net income		$ 133,362

a Total MACRS depreciation is $74,311. Assume that $38,000 of depreciation has been allocated to cost of sales for both book and tax purposes so that the book and tax inventory and cost of sales amounts are the same. The AMT depreciation adjustment on personal property is $9,000.

b The cost of goods sold amount reflects the Uniform Capitalization Rules of Sec. 263A. The appropriate restatements have 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 interest expense 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, 2011 for $100,000 and sold them on September 15, 2013, for $148,666.

h The corporation acquired the Sec. 1231 property on June 5, 2012 for $10,000 and sold it on December 21, 2013, for $8,900.

TABLE C:11-3 Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year (Problem C:11-63)

	January 1	December 31
Assets:
Cash	$   15,000	$116,948
Accounts receivable	41,500	45,180
Inventories	102,000	96,000
Stocks	103,000	74,000
Treasury bills	15,000	16,000
State of Florida bonds	10,000	10,000
Building and equipment	374,600	375,000
Minus: Accumulated depreciation	(160,484)	(173,100)
Land	160,000	190,000
Total	$660,616	$750,028
Liabilities and equities:
Accounts payable	$   36,000	$   10,000
Accrued salaries payable	12,000	6,000
Payroll taxes payable	3,416	7,106
Sales taxes payable	5,200	6,560
Due to Mr. Hiebert	10,000	5,000
Mortgage and notes payable (current maturities)	44,000	52,000
Long-term debt	210,000	260,000
Capital stock	10,000	10,000
Retained earnings	330,000	393,362
Total	$660,616	$750,028

TABLE C:11-4 Bottle-Up, Inc. Statement of Change in Retained Earnings, for the Current Year Ended December 31 (Problem C:11-63)

Balance, January 1			$330,000 a
Plus:      Net income		$133,362
Minus:   Dividends		(70,000)	63,362
Balance, December 31			$393,362

a The January 1 accumulated adjustments account balance is $274,300.

Required: Prepare the 2013 S corporation tax return (Form 1120S), including the following additional schedules and forms: Schedule D, Form 4562, and Schedule K-1.

Optional: (1) Complete Schedule M-2 in Form 1120S even though the company has never been a C corporation. For this purpose, the accumulated adjustments account at the beginning of 2013 is $102,780. (2) Prepare a schedule for each shareholder’s basis in his or her S corporation stock. For this purpose, Bailey’s stock basis at the beginning of 2013 is $1,110,834 and Firth’s is $2,246,346.