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ACCT 6113 - S Corporation Tax Return Problem




Question;Prepare Form 1120 S return for Douglas Plastics CoPrepare work papers reconciling book income to taxable income. You can accomplishthis by creating trial balance and adjusted journal entries.Explain you answers. Do not write long essays. Show your calculations and provideyour conclusion in a succinct formatAttach appropriate Tax FormsPlease work individuallyIf you have an access, you may use tax return preparation software.Return is for 2013 tax year.FORM 1120S ? U.S. INCOME TAX RETURN FOR AN S CORPORATIONOn March 12, 1992, Douglas Plastics Co., which is located at 2400 Lakeview Street, Fargo,North Dakota, 58103, (312) 555-8697, fi led an election under Code Sec. 1362(a) to be treatedas an S corporation.Douglas Plastics Co. was incorporated January 1, 1992, under the laws of the State of NorthDakota. It is engaged in the manufacture of plastic products, principally toys (principal businessactivity code number 326100). All of its income is from sources within the United States. Itsemployer identification number is 31-0031258.In 2013, the corporation had two equal stockholders and each devoted 100% of their time to thebusiness. There were no changes in stock ownership during 2013, and each stockholder owned1250 shares of the corporation. One of these stockholders, Douglas Pratt, served as president.He resides at 660 Springsteen Street, Fargo, North Dakota 58103. His social security number is555-11-6789. The other stockholder, Rickie L. Jones, served as vice president. He resides at425 State Street, Fargo, North Dakota, 58103. His social security number is 555-33-9876. In2013, Mr. Pratt?s compensation was $50,000 and Mr. Jones? compensation was $46,000.The corporation hired the outside firm of ATOZ Accounting Services (EIN 21-7777777) locatedat 1120 Main Street in Waytogo, North Dakota, 58103, (701) 555-1120, to prepare its income taxreturn on the accrual basis. Dewey Fugim prepared the return. Mr. Fugim (Preparer TaxIdentification Number P12345678) is new to the firm and Mr. Pratt is uncomfortable with himdiscussing the tax return with the IRS without his knowledge and decides not to give him taxreturn preparer permission.1Form 4562On January 3, 2012, Douglas acquired molds and patterns at a cost of $12,000. The molds andpatterns are three-year MACRS property depreciated using the 200% declining balance methodand a half-year convention. Bonus depreciation was not claimed because the assets are used.No Code Sec. 179 expense deduction was taken. The 2013 depreciation deduction on themolds and patterns amounts to $5,333. A $4,000 depreciation deduction was claimed in 2012.On June 18, 2011, used but reconditioned seven-year MACRS machinery was acquired at acost of $138,500. Douglas elected to depreciate the machinery using the alternativedepreciation method with an 11-year recovery period. No bonus depreciation was claimed andno Code Sec. 179 expense was elected for this property. The 2013 depreciation deduction onthe machinery is $12,591. Accumulated depreciation at the beginning of 2013 is $18,892.On February 11, 2013, Douglas acquired seven-year MACRS office furniture and fixtures at acost of $4,000. Douglas elects to expense the entire amount under Code Sec. 179.On January 2, 1995, Douglas acquired a brick storage building at a cost of $110,000. Thebuilding is depreciated using the straight-line method over a 31? year life. The 2013depreciation deduction on the building amounts to $3,492. Accumulated depreciation at thebeginning of 2013 is $55,729.Form 4797On January 30, 2013, Douglas sold machinery for $3,500. The machinery, which is 7-yearMACRS property, was purchased on January 14, 2007 for $10,000 and depreciated using the200-percent declining-balance method and a half-year convention. Accumulated depreciationwas $7,323 on the date of sale.On January 18, 2013, Douglas sold a building for $62,500. The building was acquired onJanuary 10, 1995, at a cost of $90,000. Douglas has accumulated depreciation on the buildingof $45,597 at the beginning of 2013. Also, on January 18, 2013, the corporation sold the landassociated with the building for $13,000. The land was acquired at a cost of $10,000.Charitable ContributionsThe following charitable contributions to 50% organizations located in Fargo, North Dakota weremade by the corporation in 2013.Community Fund, $500,Mercy Hospital, $500,Congregational Church, $250, andBoy Scouts of America, $250.DistributionsThe corporation made cash distributions of $80,000 on March 12, 2013, and $120,000 on May5, 2013. The distributions were in proportion to stock holdings.From 1120S ? Schedule DThe corporation sold 100 shares of Nicole Co. stock on January 16, 2013, for $7,775. The stockwas purchased on March 12, 1995, for $9,689.ADJUSTED TRIAL BALANCEThe following is the adjusted trial balance of Douglas Plastics Co. as of December 31, 2013:DebitGross SalesReturn & AllowancesInventory Adjustment (1)PurchasesFactory Sales & WagesFreight ExpenseFactory InsuranceFactory UtilitiesFactory Water (Form 1125AOther Costs)Factory Payroll Taxes?Factory Real Estate Taxes?Dividends Received Domestic(2)Interest On US Obligations (2)Interest on Tax Exempt BondsExpense Related to TaxExempt BondsOther Interest (2)Gross Rents (3)Loss on Sale of Stock (4)Gain on Sale of Building (4)Gain on Sale of Land (4)Gain on Sale of Machine (4)Bad DebtsRents PaidMotor Vehicle TaxEmployment TaxesFranchise TaxReal Property TaxCharitable ContributionsEmployee Health InsuranceCosts3Credit692,759.007,360.006,565.00100,650.00180,235.00950.004,200.0010,850.001,150.0016,110.005,000.00788.002,990.001,635.0090.00472.004,000.001,914.0018,216.003,000.00823.004,500.001,200.00100.0011,157.00300.001,680.001,500.0034,000.00DepreciationPostageOffice SuppliesTelephoneMeals & Entertainment(subject to 50% Limitation)25,982.004,683.003,760.004,630.006,600.00DebitShareholder Distribution3/12/11Shareholder Distribution5/5/11Officer SalariesSalaries & Wages ofMarketing & AdministrationRepairsInterest PaidAdvertisingPension Plan ContributionsCashClosing InventoryNotes & Accounts ReceivablePrepaid InsuranceNorth Dakota Municipal BondsUS Series EE Bonds100S Nicole Co CommonStockBrick Storage Bldg (Acquired1/2/95)Factory Equipment (Acquired6/18/09)Molds and Patterns (Acquired1/3/10)Furniture and Fixtures(Acquired 2/11/11)Accumulated DepreciationLandAccounts PayableShort Term Notes Payable toBanksAccrued Payroll TaxesLong Term Notes PayableCapital StockAccumulated AdjustmentsAccount (1/1/12) (5)Other Adjustment Account(1/1/12)(5)TotalCredit80,000.00120,000.0096,000.0039,446.003,694.0013,620.003,500.008,805.0060,662.00125,330.0019,210.00300.0030,000.0024,450.009,700.00110,000.00138,500.0012,000.004,000.00104,037.0020,000.0090,749.0010,000.004,410.00210,000.005,000.00190,734.001,640.001,347,818.001,347,818.001 Inventory adjustment: The inventory adjustment figure represents the difference between theopening inventory and the closing inventory. This figure, as such, will not appear on the return.The inventories are taken at cost or market, whichever is lower. There was no change indetermining the quantities, cost or valuations between the opening and closing inventory.2 Dividends received, U.S. obligations interest, Other interest: The Nicole Co. dividend incomeof $788, the interest earned on the U.S. Series EE Bonds of $2,990, and the other interest of$472 from Fargo National Bank, is portfolio income. As such, these items are reported onSchedules K and K-1.3 Gross rents: The gross rents of $4,000 represent gross income from a rental activity otherthan real estate and are reported on Schedules K and K-1. There were no related expenses.4 Stock sale loss, Building sale gain, Land sale gain, Machine sale gain: For purposes ofreporting these items on Form 1120S, it is necessary to first report each of them either onSchedule D or on Form 4797, as applicable. The capital loss and any Code Sec. 1231 gain arereported on Schedules K and K-1.5 Accumulated adjustments account, Other adjustments account: The amount of the ?Retainedearnings? as reported on Line 24, column (b) of Schedule L is the sum of the AccumulatedAdjustments account and the Other Adjustments account at the beginning of 2013. Schedule M2 must be completed to determine the amount reported on Line 24, column (d) of Schedule L.The following is a balance sheet for Douglas Plastics Co. as of December 31, 2012:AssetsCashNotes and AccountsReceivableInventoriesPrepaid InsuranceUS Series E BondsNorth Dakota Municipal BondsLoans to Shareholders200 Shares Nicole CommonBuildings & Other DepreciableAssetsAccumulated DepreciationLandLiabilities & CapitalAccounts PayableShort Term Notes Payable ToBanksAccrued Payroll TaxesLong Term NotesCapital StockAccumulated AdjustmentsAccount5DrCr50,706.0094,210.00118,765.00530.0010,368.0030,000.002,000.0019,389.00360,500.00131,094.0030,000.00155,905.0020,000.002,095.00210,000.005,000.00190,734.00Other Adjustment AccountTotal716,478.001,640716,478Douglas Plastics Co. filed all other necessary information and tax returns for 2013, including Form 1096 and Form 1099.


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