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.
