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The Snap-It-Open Corporation incorporated and began operations




Question;APPENDIX D;TAX RETURN PROBLEMS;TAX RETURN PROBLEM 1 (TRP 1);CORPORATE TAX RETURN PROBLEM;The Snap-It-Open Corporation incorporated and began;operations on January 15 of the current year. Its address is 3701 Commerce;Drive, Baltimore, MD 23239. Its employer identification number is 69-7414447.;It elects to file its initial tax return as a calendar-year corporation and;uses the accrual method of accounting. It elects the FIFO method of inventory;valuation. JasoriSPrull (SSN 333-33-3333) and Martin Winsock (SSN 555-55-5555);formed the business. They each contributed $250,000 cash for 50 percent of the;100,000 shares of $1 par value stock issued and outstanding. The company was;formed to assemble and market a unique, compact, snap-open umbrella and its;business activity code is 339900. These umbrellas are sold to a variety of;organizations as premiums. The company purchases the umbrella frames and;several types of waterproof fabric for the umbrella material and cov-ers from;various manufacturers. It prints the organizations' advertising logos or other;designs on the umbrella material and covers. It then assembles these on the;umbrella frames for delivery to the customer along with the covers. On January;16, the company placed in service two new machines that they had purchased for;$250,000 each for printing and cutting the fabric for the umbrellas and two;used umbrella assembly machines purchased for $200,000 each. The company;obtained a bank loan of $750,000 secured by the machines. Jason and Martin were;required to personally guarantee this loan that has an 8 percent annual;interest rate on the unpaid balance. The first principal and inter-est payment;of $160,000 is not due until January 16 of next year. During the year, the;company purchased $150,000 of fabric and $210,000 of umbrella frames. It;returned one order of frames valued at $5,000 because of a defect in the;snap-open mechanism and received a cash refund for that amount. Both Jason and;Martin worked full-time in the business. Jason was the sales-person for the;company and Martin managed the office and the printing and assembly operations.;Each received a salary of $60,000 for the year. They had six employees with the;following incomes for the year: $45,000 for an accountant, $21,000 for a;receptionist, $28,000 for each of two print machine operators, and $25,000 for;each of two assembly machine operators. There are no accrued salaries or taxes;as of the end of the current year. FUTA taxes are assessed on the first $7,000;of wages at a rate of 6.0 percent. During the year, the company had $1,535,000;in umbrella sales and collected $1,180,000 on these sales. They also paid the;following expenses in cash;Rent $240,000;Repairs and Maintenance 20,000;Utilities 80,000;Taxes and Licenses (excluding FICA and FUTA taxes) 10,000;Health Insurance;16,000;Advertising 40,000 Travel (excluding meals) 20,000;Meals and;Entertainment 15,000;Group Term Life Insurance 2,000;As an accrual-basis taxpayer, the company recognized $57,500;in interest expense on the note ($750,000 x.08 x 11.5/12) and established an;allowance account for bad debts equal to two percent of sales. They recognized;depreciation expense for financial accounting equal to 10 percent of the;purchase price for the new printing machines and 12.5 percent of the purchase;price for the used assembly machines. Their inventory at year-end consisted of;$15,000 of fabric and $18,000 of umbrella frames based on the FIFO inventory;method. (For simplicity, you are only required to allocate the factory salaries;to the calculation of cost of goods sold.) The company made estimated tax;payments of $40,000 for the year. Required Part a. Prepare a financial;accounting income statement (before income tax) and balance sheet for;Snap-It-Open Corporation for the current year. (Do not forget to compute FICA;and FUTA taxes for all employees.) Part b. Complete a Form 1120 and Form 4562;for Snap-It-Open Corporation using the following additional information. The;corporation wrote off no bad debts for the year and it maximized its cost;recovery deductions on the four machines purchased. Use the latest available;tax forms from the IRS Web site at;TAX RETURN PROBLEM 2 (TRP 2);PARTNERSHIP TAX RETURN PROBLEM;The Rite-Way Plumbing Company began business three years ago;as of March 1 of the current tax year in Sarasota. Its business address is 124;Division Lane, Sarasota, FL 33645. Its employer identification number is;69-3456789. Its princi-pal business activity is residential plumbing repairs;and maintenance, its business code is 238220. It files its income tax returns;on the calendar-year basis. The business was formed as a limited partnership by;two brothers, John Henry (SSN 555-55-5555) and James Henry (SSN 666-66-6666);who work full-time in the business, and their father Tom Henry (SSN;888-88-8888), the limited partner. The brothers each have a 25 percent interest;in the income, loss, and cap-ital of the business while their father owns a 50;percent interest in income, loss, and capital, but takes no active interest in;the business other than as that of an investor. At the end of the current year;its operations showed cash gross receipts of;$1,240,000 and the following cash expenditure items;Salaries and wages (excluding John and James) Repairs and Maintenance Rent;Taxes and Licenses Advertising Pension Plans (excluding John and James) $378 2,000;28,000 3 000 183, 0070 15,000 Health/Dental Insurance 16,000 Material;Purchases 220,000 Truck Expense 45,000 Insurance (excluding health/dental);65,000 Legal/Professional Fees Office;Expenses 63,000000 Utilities/Telephone 8,000 Meals/Entertainment 4,000;Draw?John 75,000 Draw?James 60.000 Total Cash Expenditures $966,000


Paper#38439 | Written in 18-Jul-2015

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