Details of this Paper

Joe Mooney and Guy Flick tax return

Description

solution


Question

Question;TAX 5015 (Spring 2013) ? Tax Return Project No. 1 (50 points)To be done in small groups (2-3) due date: Feb. 20/21, 2013On June 6, 2001 Joe Mooney and Guy Flick formed Sun & Fun Beach Products to manufacture and sellbeach gear, toys and accessories. For several years Joe had run a smaller shop ?Cheap Beach Stuff?which he operated as a cash-basis sole proprietorship. Cheap Beach Stuff reported the followingbalance sheet:June 6, 2001Tax basis Fair valueCash 6,137 6,137Accounts receivable 0 24,558Inventory 60,647 129,305Building 55,250 110,000Land 29,750 55,000151,784 325,000Accounts payable 0 13,189Notes payable 24,000 24,000Mortgage on land & building 40,000 40,000Equity 87,784 247,811151,784 325,000Joe transfers all of the assets and liabilities of Cheap Beach Stuff for 70% of the common stock in Sun& Fun.Guy contributes cash of $40,000, inventory worth $56,205 (basis of $38,013) and provides services tohelp organize the corporation worth $10,000 for the remaining 30% of the common stock in Sun & Fun.General information regarding the corporation is summarized as follows:? The business address is 350 Main Street, White Sands, Florida.? The employer identification number is 75-3392543, the principal business activity code is339900.? Joe is president of the company, and Guy is secretary-treasurer. Both are full-time employees ofthe corporation. Joe?s compensation is $150,000 (social security number 123-45-6789). Guy?scompensation is $90,000 (social security number 333-22-4444).? The corporation uses the accrual method of accounting and reports on a calendar-year basis.Inventory has been consistently valued at lower-of-cost-or-market under the FIFO method.Inventory capitalization rules of IRC section 263A do not apply due to the ?small businessexception? (average annual gross receipts for the three preceding taxable years do not exceed$10 million).? The corporation was not a grantor to a foreign trust, nor does the corporation maintain a foreignbank account or foreign security account.? No net operating loss, capital loss, general business credit, prior year minimum tax credit, orother carryovers to 2012 exist.Detailed information regarding some of Sun & Fun?s activities and transactions during the year:1. Sun & Fun purchased some new manufacturing equipment (7-year property) that cost $13,580.MACRS on all other existing depreciable assets totaled $69,163 for 2012.2. Sun & Fun purchased at par $50,000 of Seabrook Station Utility bonds. Interest of $1,500 wasreceived on the bonds during the year.3. Sun & Fun sold machinery for $6,900. The machine cost $15,350. Accumulated depreciation forbook purposes was $7,246. Cost recovery for tax purposes totaled $9,596.4. Sun & Fun sold a warehouse for $30,000. They consolidated their warehouse activities and chosenot to replace the warehouse. The warehouse cost $40,000. Accumulated depreciation for bookpurposes was $14,000. Cost recovery for tax purposes totaled $7,179.5. Sun & Fun has a qualified retirement plan which covers all of their employees. During 2012 theymade total contributions of $23,900 to this plan, of which $10,000 was for Joe and Guy ($5,000each).6. Included in employee benefits expense are $532 and $420 premiums for $50,000 (face value)group term life insurance for Joe and Guy, respectively. Family members are named asbeneficiaries in the policies.7. The key-man life insurance provided $500,000 coverage on Joe & Guy. The company is the ownerand the beneficiary of the policies.8. Contributions for the year included:World Wildlife Fund, Inc..............................................................29,963American National Red Cross..........................................................3,000Woodbury Church Food Pantry....................................................... 1,969All contributions were paid in cash except for the Food Pantry contribution which was pledged bySun & Fun on December 17, 2012 (and approved by the Board of Directors). The donation waspaid on February 17, 2013.9. An analysis of the Allowance for Doubtful Accounts reveals:Balance ? December 31, 2011..............................$15,7822012 transactions:Bad debt expense.................................................3,105Recovery of account previously written off 1,200Accounts written off as uncollectible........(4,756)Balance ? December 31, 2012.............................$15,33110. Taxes included:Property taxes................................................................................... 21,244Payroll taxes....................................................................................... 51,883Other miscellaneous taxes............................................................. 2,16811. Interest expense was on loans for the following purposes:Purchase of buildings, machinery and equipment....................77,779Purchase Seabrook Station Utility Bonds................................. 1,300Cover shortfall in working capital................................................ 3,79812. Information regarding the sale of investments in common stock during the year:Asset Acquired Sold Basis Proceeds?A? stock (100 shares) 2-15-06 8-13-12 5,000 7,085?B? stock (200 shares) 3-2-12 7-7-12 12,295 8,300?C? stock (50 shares) 1-3-07 12-7-12 10,000 8,320Note: The ?C? stock was sold to Joe Mooney.13. Dividend income from less than 20% investments is from the following sources:Plastics Corporation common stock............................................. 4,244International Manufacturing Corporation common stock..... 2,731Stow-n-Go Corporation preferred stock................................... 3,79814. Sun & Fun owns 30% of the outstanding common stock of Hobby Corporation. During 2012, Hobbyreported $1,000,000 of income. For book purposes Sun & Fun accounted for its investment inHobby under the equity method. Hobby Corporation also distributed a $100,000 dividend to Sun& Fun.15. Sun & Fun distributed cash dividends totaling $160,000.16. Sun & Fun Corporation made timely estimated federal income tax payments of $130,000 to theU.S. Treasury. (Ignore deferred income taxes for book purposes.)17. Sun & Fun?s qualified production activities income (QPAI) is $200,000.18. After taking a physical count of inventory at December 31, 2012, ending inventory was computedas $641,774.19. The accumulated E & P balance at December 31, 2011 was $520,960. Depreciation expensecomputed under ADS for E&P purposes was $40,000. The increase in the cash surrender value ofthe life insurance was $374. (Note: Ignore the +/- E&P adjustment for differences in the gain(loss) from the sale of business properties.)Required:1. Compute Joe and Guy?s initial bases in their Sun & Fun stock on June 6, 2001 when they formed thecorporation. Prepare Sun & Fun?s initial tax-basis and GAAP-basis balance sheet as of June 6, 2001.2. Mr. Mooney, Sun & Fun's President, has asked you to prepare Sun & Fun's 2012 corporate tax return.Mr. Mooney has asked you to minimize Sun & Fun?s 2012 taxable income (ignore any AMT). Roundyour computations to the nearest dollar. Clearly state any assumptions made in completing thereturn. Include any supporting schedules you feel are necessary. When submitting the forms, pleaseplace in sequence according to the appropriate order (i.e. ascending sequence number). Place allsupporting schedules after the forms to which they directly relate, making sure they are properlyreferenced.The following forms (and instructions) are available from my web page. Do NOT prepare the returnwith commercial tax preparation software.? Form 1120: U.S. Corporation Income Tax Return(and accompanying schedules C, K, L*, M-1, and M-2)? Schedule D (Form 1120): Capital Gains and Losses (ignore Form 8949 ? assume Box ?A? ischecked for the sale of all investments in common stock)? From 4562: Depreciation and Amortization? Form 4797: Sales of Business PropertyNote*: For Schedule L ? complete the ending balance sheet only.3. Include a memo to the client informing them of the following:? How much tax they owe or how much is to be refunded to them.? Instructions for paying estimated taxes for the 2013 tax year.? Any carryforwards they may have.4. Prepare the GAAP-based income statement for the year ended December 31, 2012 and the balancesheet as of December 31, 2012 for Sun & Fun Corporation. Sun & Fun?s 2012 adjusted trial balance isreported in the Excel spreadsheet.5. Compute Sun & Fun?s current E&P for 2012 and the accumulated E&P balance at December 31, 2012.6. Compute Joe and Guy?s bases in their Sun & Fun stock at December 31, 2012. Sun & Fun?s corporatedebt increased by $63,000 during 2012. Joe and Guy did not make any additionaltransfers/investments in Sun & Fun over the period 2001-2011. The tab labeled ?Profit_Loss? in theExcel worksheet summarizes Sun & Fun?s accounting net income, loss, dividends paid, and E&P overthe period 2001-2011.7. What amounts will Joe and Guy report on their individual Form 1040?s related to Sun & Fun?s 2012activities?

 

Paper#49833 | Written in 18-Jul-2015

Price : $37
SiteLock