John Smith, David Daniels, Mark Miller, and
Judy Butler are equal owners in “PLUS, Inc.” – a corporation engaged in HR
consulting. Pertinent information
regarding PLUS is summarized below.

·
Social security numbers are as
follows; John – 558-98-4523; David – 345-63-5467; Mark – 234-91-1450; and Judy
– 677-77-1678. John is the President of
the company.

·
The address of the company is 11
Juniper St., Wilmington, NC 26812.

·
The company was incorporated
and began operations on January 1, 2007.

·
The business code is 561900.

·
The federal identification
number is 68-1894875

·
The company uses the cash
method of accounting and the calendar year for reporting.

·
The company claimed $8,119
depreciation for book purposes, but $11,619 for tax purposes (under a MACRS
methodology). Assume none of the depreciation creates a tax preference or adjustment for
AMT purposes. The company is NOT a
personal holding company.

·
All loan borrowings were used
exclusively for acquisition of equipment, consequently, all interest is
considered business interest.

·
No compensation was paid to Daniels,
Miller, or Butler, but each of the four owners withdrew $35,000 as a dividend
of operating profits. There was no
distribution of any non-cash property.

·
The equipment loan is nonrecourse
debt to the owners. All initial equity contributions
were paid equally and each individual owns 25% of the common stock.

·
None of the shareholders sold
any portion of their ownership interests during the year.

·
The company has no available
tax credits and is not subject to AMT.

·
The company’s operations are
entirely restricted to the local geographic area in North Carolina. All owners are U.S. citizens. The company had no foreign operations, no
foreign bank accounts, and no interest in any foreign trusts or other corporations. The company is not publicly traded.

·
The company is not subject to
the consolidated audit procedures. The company
files its return in Cincinnati, OH.

·
John Smith lives at 819 Azalea
Dr., Wilmington, NC 26811, David Daniels lives at 800 Daffy Dr., Wilmington, NC
26812; Mark Miller lives at 250 Lakewood Rd., Wilmington, NC 26812; and Judy
Butler lives at 170 Camilla Ave., Wilmington, NC 26812.

·
The company’s marketable
securities represent small investments (<1%) in a number of publicly traded
companies and mutual funds.

·
The company sold its holdings of
AIM Corporation (carried as Marketable Securities on the balance sheet) on
October 15 for $5,000. The corporation
purchased this investment several years ago for $9,000.

(The proceeds
from this sale are listed as a cash receipt below. The company has no prior-year capital gains
or losses.)

The current income statement for the company
reflected book net income of $ 143,900 AFTER book depreciation has been taken
on the equipment, and the loss on the sale of JUNE Mutual Fund, and $60,000 of
recorded federal income tax expense. The
following information was taken from the corporation’s financial statements for
the current year.

Cash Receipts:

Fees
collected $755,000

Taxable
qualified dividend income 4,600

Taxable
business interest income 1,400

Tax
Exempt interest 2,600

Proceeds
from sale of XYZ Corp. common stock $ 5,000

Total
Receipts $768,600

Cash Disbursements:

Compensation
to Rick Sternberg $120,000

Dividend
payments to shareholders ($35K each) 140,000

Customer
Refunds 3.000

Office
Rent 26,000

Utilities 6,700

Administrative
employee salaries 310,000

Federal
income tax payments ($15K/Qtr.) 60,000

Business
& Professional Licenses 2,000

Cash
Contribution to United Way (a 50% org.) 1,000

Meals
& Entertainment (100%) 2,600

Travel 9,000

Office
supplies & expense 10,481

Accounting
(Professional) fees 10,000

Advertising 5,000

Taxes
(Payroll, State, Local) 29,600

Business
interest (on equipment loan) 4,000

Principal
payments on equipment loan 15,000

General
Liability Insurance Expense 3,200

Equipment
rental
5,000

Total
Disbursements 762,581

Journal entries have been made to record
regular (book) depreciation in the amount of $8,119. MACRS tax depreciation was not recorded in
the book records.

Principle payments against the equipment
loan amounted to $15,000 for the year.

The balance sheets (book basis) for the company
were as follows for the current year:

Account January
1, 201x December 31, 201x

Cash $ 86,576 $ ?

Tax-exempt securities(at cost) 52,000 52,000

Marketable Securities (at cost) 120,000 111,000

Office furniture & equipment 65,000 65,000

Accumulated depreciation ( 36,576) ________?

Total
assets $ 287,000 $ ?

Nonrecourse equipment loan $ 47,000 $ 32,000

Common Stock $ 48,000 $ ?

Retained Earnings $ 192,000 $_______?

Total
liabilities and capital $
287,000 $ ?

REQUIRED: 1.
Prepare a Form 1120 for the corporation including
Form 4562. (Do NOT prepare a state
return). Prepare supporting schedules as necessary if adequate information is
provided. (Hint: If you use a tax software
program, you may override the Form 4562 with asset and current and accumulated
depreciation entries).

John Smith, David Daniels, Mark Miller, and
Judy Butler are equal owners in “PLUS, Inc.” – a corporation engaged in HR
consulting. Pertinent information
regarding PLUS is summarized below.

·
Social security numbers are as
follows; John – 558-98-4523; David – 345-63-5467; Mark – 234-91-1450; and Judy
– 677-77-1678. John is the President of
the company.

·
The address of the company is 11
Juniper St., Wilmington, NC 26812.

·
The company was incorporated
and began operations on January 1, 2007.

·
The business code is 561900.

·
The federal identification
number is 68-1894875

·
The company uses the cash
method of accounting and the calendar year for reporting.

·
The company claimed $8,119
depreciation for book purposes, but $11,619 for tax purposes (under a MACRS
methodology). Assume none of the depreciation creates a tax preference or adjustment for
AMT purposes. The company is NOT a
personal holding company.

·
All loan borrowings were used
exclusively for acquisition of equipment, consequently, all interest is
considered business interest.

·
No compensation was paid to Daniels,
Miller, or Butler, but each of the four owners withdrew $35,000 as a dividend
of operating profits. There was no
distribution of any non-cash property.

·
The equipment loan is nonrecourse
debt to the owners. All initial equity contributions
were paid equally and each individual owns 25% of the common stock.

·
None of the shareholders sold
any portion of their ownership interests during the year.

·
The company has no available
tax credits and is not subject to AMT.

·
The company’s operations are
entirely restricted to the local geographic area in North Carolina. All owners are U.S. citizens. The company had no foreign operations, no
foreign bank accounts, and no interest in any foreign trusts or other corporations. The company is not publicly traded.

·
The company is not subject to
the consolidated audit procedures. The company
files its return in Cincinnati, OH.

·
John Smith lives at 819 Azalea
Dr., Wilmington, NC 26811, David Daniels lives at 800 Daffy Dr., Wilmington, NC
26812; Mark Miller lives at 250 Lakewood Rd., Wilmington, NC 26812; and Judy
Butler lives at 170 Camilla Ave., Wilmington, NC 26812.

·
The company’s marketable
securities represent small investments (<1%) in a number of publicly traded
companies and mutual funds.

·
The company sold its holdings of
AIM Corporation (carried as Marketable Securities on the balance sheet) on
October 15 for $5,000. The corporation
purchased this investment several years ago for $9,000.

(The proceeds
from this sale are listed as a cash receipt below. The company has no prior-year capital gains
or losses.)

The current income statement for the company
reflected book net income of $ 143,900 AFTER book depreciation has been taken
on the equipment, and the loss on the sale of JUNE Mutual Fund, and $60,000 of
recorded federal income tax expense. The
following information was taken from the corporation’s financial statements for
the current year.

Cash Receipts:

Fees
collected $755,000

Taxable
qualified dividend income 4,600

Taxable
business interest income 1,400

Tax
Exempt interest 2,600

Proceeds
from sale of XYZ Corp. common stock $ 5,000

Total
Receipts $768,600

Cash Disbursements:

Compensation
to Rick Sternberg $120,000

Dividend
payments to shareholders ($35K each) 140,000

Customer
Refunds 3.000

Office
Rent 26,000

Utilities 6,700

Administrative
employee salaries 310,000

Federal
income tax payments ($15K/Qtr.) 60,000

Business
& Professional Licenses 2,000

Cash
Contribution to United Way (a 50% org.) 1,000

Meals
& Entertainment (100%) 2,600

Travel 9,000

Office
supplies & expense 10,481

Accounting
(Professional) fees 10,000

Advertising 5,000

Taxes
(Payroll, State, Local) 29,600

Business
interest (on equipment loan) 4,000

Principal
payments on equipment loan 15,000

General
Liability Insurance Expense 3,200

Equipment
rental
5,000

Total
Disbursements 762,581

Journal entries have been made to record
regular (book) depreciation in the amount of $8,119. MACRS tax depreciation was not recorded in
the book records.

Principle payments against the equipment
loan amounted to $15,000 for the year.

The balance sheets (book basis) for the company
were as follows for the current year:

Account January
1, 201x December 31, 201x

Cash $ 86,576 $ ?

Tax-exempt securities(at cost) 52,000 52,000

Marketable Securities (at cost) 120,000 111,000

Office furniture & equipment 65,000 65,000

Accumulated depreciation ( 36,576) ________?

Total
assets $ 287,000 $ ?

Nonrecourse equipment loan $ 47,000 $ 32,000

Common Stock $ 48,000 $ ?

Retained Earnings $ 192,000 $_______?

Total
liabilities and capital $
287,000 $ ?

REQUIRED: 1.
Prepare a Form 1120 for the corporation including
Form 4562. (Do NOT prepare a state
return). Prepare supporting schedules as necessary if adequate information is
provided. (Hint: If you use a tax software
program, you may override the Form 4562 with asset and current and accumulated
depreciation entries).