John Smith, David Daniels, Mark Miller, and
Judy Butler are equal owners in â€œPLUS, Inc.â€ â€“ a corporation engaged in HR
consulting. Pertinent information
regarding PLUS is summarized below.
Social security numbers are as
follows; John â€“ 558-98-4523; David â€“ 345-63-5467; Mark â€“ 234-91-1450; and Judy
â€“ 677-77-1678. John is the President of
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 companyâ€™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 companyâ€™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.
from this sale are listed as a cash receipt below. The company has no prior-year capital gains
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 corporationâ€™s financial statements for
the current year.
qualified dividend income 4,600
business interest income 1,400
Exempt interest 2,600
from sale of XYZ Corp. common stock $ 5,000
to Rick Sternberg $120,000
payments to shareholders ($35K each) 140,000
employee salaries 310,000
income tax payments ($15K/Qtr.) 60,000
& Professional Licenses 2,000
Contribution to United Way (a 50% org.) 1,000
& Entertainment (100%) 2,600
supplies & expense 10,481
(Professional) fees 10,000
(Payroll, State, Local) 29,600
interest (on equipment loan) 4,000
payments on equipment loan 15,000
Liability Insurance Expense 3,200
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:
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) ________?
assets $ 287,000 $ ?
Nonrecourse equipment loan $ 47,000 $ 32,000
Common Stock $ 48,000 $ ?
Retained Earnings $ 192,000 $_______?
liabilities and capital $
287,000 $ ?
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
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