Question;Acct 6113;S Corporation;Due Date April;28, 2014;This problem is worth 100 points;? Prepare Form 1120;S return for Douglas Plastics Co;? Prepare work papers reconciling;book income to taxable income. You can;accomplish this by creating trial balance and adjusted journal entries.;? Explain you answers. Do not write long essays. Show your calculations and provide your;conclusion in a succinct format;? Attach;appropriate Tax Forms;? Please work;individually;? If 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;CORPORATION;On 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 treated as an S;corporation.;Douglas Plastics Co. was incorporated;January 1, 1992, under the laws of the State of North Dakota. It is engaged in;the manufacture of plastic products, principally toys (principal business;activity code number 326100). All of its income is from sources within the;United States. Its employer identification number is 31-0031258.;In 2013, the corporation had two equal;stockholders and each devoted 100% of their time to the business. There were no;changes in stock ownership during 2013, and each stockholder owned 1250 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 is 555-11-6789. The other stockholder, Rickie L. Jones;served as vice president. He resides at 425 State Street, Fargo, North Dakota;58103. His social security number is 555-33-9876. In 2013, 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) located at 1120 Main Street in;Waytogo, North Dakota, 58103, (701) 555-1120, to prepare its income tax return;on the accrual basis. Dewey Fugim prepared the return. Mr. Fugim (Preparer Tax;Identification Number P12345678) is new to the firm and Mr. Pratt is;uncomfortable with him discussing the tax return with the IRS without his;knowledge and decides not to give him tax return preparer permission.;Form;4562;On January 3, 2012, Douglas acquired molds;and patterns at a cost of $12,000. The molds and patterns are three-year MACRS property;depreciated using the 200% declining balance method and 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 the molds;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 a cost of $138,500. Douglas elected;to depreciate the machinery using the alternative depreciation method with an 11-year;recovery period. No bonus depreciation was claimed and no Code Sec. 179 expense;was elected for this property. The 2013 depreciation deduction on the 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 a cost 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. The building is depreciated using;the straight-line method;over a 31? year life. The 2013 depreciation deduction on the building amounts;to $3,492.;Accumulated depreciation at the beginning of 2013 is $55,729.;Form;4797;On January 30, 2013, Douglas sold machinery;for $3,500. The machinery, which is 7-year MACRS property, was purchased on;January 14, 2007 for $10,000 and depreciated using the 200-percent;declining-balance method and a half-year convention. Accumulated depreciation was $7,323 on the;date of sale.;On January 18, 2013, Douglas sold a;building for $62,500. The building was acquired on January 10, 1995, at a cost;of $90,000. Douglas has accumulated depreciation on the building of $45,597 at;the beginning of 2013. Also, on January 18, 2013, the corporation sold the land;associated with the building for $13,000. The land was acquired at a cost of;$10,000.;Charitable Contributions;The following charitable contributions to;50% organizations located in Fargo, North Dakota were made by the corporation;in 2013.;Community Fund, $500;Mercy Hospital, $500;Congregational Church, $250, and;Boy Scouts of America, $250.;Distributions;The corporation made cash distributions of;$80,000 on March 12, 2013, and $120,000 on May 5, 2013. The distributions were;in proportion to stock holdings.;From;1120S ? Schedule D;The corporation sold 100 shares of Nicole;Co. stock on January 16, 2013, for $7,775. The stock was purchased on March 12;1995, for $9,689.;ADJUSTED TRIAL BALANCE;The following is the adjusted trial balance;of Douglas Plastics Co. as of December 31, 2013;Debit;Credit;Gross Sales;692,759.00;Return & Allowances;7,360.00;Inventory Adjustment (1);6,565.00;Purchases;100,650.00;Factory Sales & Wages;180,235.00;Freight;Expense;950.00;Factory;Insurance;4,200.00;Factory;Utilities;10,850.00;Factory;Water (Form 1125A Other Costs);1,150.00;Factory;Payroll Taxes?;16,110.00;Factory;Real Estate Taxes?;5,000.00;Dividends Received Domestic (2);788.00;Interest On US Obligations (2);2,990.00;Interest on Tax Exempt Bonds;1,635.00;Expense Related to Tax Exempt Bonds;90.00;Other Interest (2);472.00;Gross Rents (3);4,000.00;Loss on Sale of Stock (4);1,914.00;Gain on Sale of Building (4);18,216.00;Gain on Sale of Land (4);3,000.00;Gain on Sale of Machine (4);823.00;Bad Debts;4,500.00;Rents Paid;1,200.00;Motor Vehicle Tax;100.00;Employment Taxes;11,157.00;Franchise Tax;300.00;Real Property Tax;1,680.00;Charitable Contributions;1,500.00;Employee Health Insurance Costs;34,000.00;Depreciation;25,982.00;Postage;4,683.00;Office Supplies;3,760.00;Telephone;4,630.00;Meals & Entertainment (subject to 50%;Limitation);6,600.00;Debit;Credit;Shareholder Distribution 3/12/11;80,000.00;Shareholder Distribution 5/5/11;120,000.00;Officer Salaries;96,000.00;Salaries & Wages of Marketing;Administration;39,446.00;Repairs;3,694.00;Interest Paid;13,620.00;Advertising;3,500.00;Pension Plan Contributions;8,805.00;Cash;60,662.00;Closing Inventory;125,330.00;Notes & Accounts Receivable;19,210.00;Prepaid Insurance;300.00;North Dakota Municipal Bonds;30,000.00;US Series EE Bonds;24,450.00;100S Nicole Co Common Stock;9,700.00;Brick Storage Bldg (Acquired 1/2/95);110,000.00;Factory Equipment (Acquired 6/18/09);138,500.00;Molds and Patterns (Acquired 1/3/10);12,000.00;Furniture and Fixtures (Acquired 2/11/11);4,000.00;Accumulated Depreciation;104,037.00;Land;20,000.00;Accounts Payable;90,749.00;Short Term Notes Payable to Banks;10,000.00;Accrued Payroll Taxes;4,410.00;Long Term Notes Payable;210,000.00;Capital Stock;5,000.00;Accumulated Adjustments Account (1/1/12) (5);190,734.00;Other Adjustment Account (1/1/12)(5);1,640.00;Total;1,347,818.00;1,347,818.00;1 Inventory adjustment: The inventory;adjustment figure represents the difference between the opening 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 in determining the quantities, cost or valuations between the opening;and closing inventory.;2 Dividends received, U.S. obligations;interest, Other interest: The Nicole Co. dividend income of $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 on Schedules K and K-1.;3 Gross rents: The gross rents of $4,000;represent gross income from a rental activity other than 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 of reporting these items on Form;1120S, it is necessary to first report each of them either on Schedule D or on;Form 4797, as applicable. The capital loss and any Code Sec. 1231 gain are;reported on Schedules K and K-1.;5 Accumulated adjustments account, Other;adjustments account: The amount of the ?Retained earnings? as reported on Line;24, column (b) of Schedule L is the sum of the Accumulated Adjustments account;and the Other Adjustments account at the beginning of 2013. Schedule M-2 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;Assets;Dr;Cr;Cash;50,706.00;Notes and Accounts Receivable;94,210.00;Inventories;118,765.00;Prepaid Insurance;530.00;US Series E Bonds;10,368.00;North Dakota Municipal Bonds;30,000.00;Loans to Shareholders;2,000.00;200 Shares Nicole Common;19,389.00;Buildings & Other Depreciable Assets;360,500.00;Accumulated Depreciation;131,094.00;Land;30,000.00;Liabilities;Capital;Accounts Payable;155,905.00;Short Term Notes Payable To Banks;20,000.00;Accrued Payroll Taxes;2,095.00;Long Term Notes;210,000.00;Capital Stock;5,000.00;Accumulated Adjustments Account;190,734.00;Other Adjustment Account;1,640;Total;716,478.00;716,478;Douglas;Plastics Co. filed all other necessary information and tax returns for 2013;including Form 1096 and Form 1099.
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