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Save the Guppies, Inc.

Federal Tax Return

FACTS

Save the Guppies, Inc. is owned by James Molly and his wife, Mary Molly. The corporation manufactures stuffed polar bears (business activity code number 339900). The corporation has reported positive financial and taxable incomes since inception.

The company is located at 123 Guppies Way, Washington, DC 20001. The company’s employer identification number is 12-3456789, and corporation uses a calendar year for tax purposes. The date of incorporation was February 19, 2011.

James Molly (social security number 000-00 -0000) is a 53 percent shareholder and president of the company. Mary Molly (social security number 222-22-2222) is a 47 percent shareholder and vice president of the company. Both persons devote 100 percent of their time to the corporation. James’s compensation is $131,468 per year, and Mary’s compensation is $116,585 per year.

The following additional pertinent facts apply to Save the Guppies, Inc.:

• It is not a personal holding company;
• The corporation is a closely-held C corporation and it does not engage in activities to which the at-risk or passive activity loss limitations would apply.
• Tax returns are filed on the accrual method.
• Inventory is valued at Cost under the FIFO method using the full absorption procedure.
• Internal Revenue Code Section 263A does not apply, as Save the Guppies; Inc. meets the ‘small business exception’.
• Business interest deduction does not apply as Save the Guppies; Inc. meets the small business exception.
• Accounting records of the corporation are computerized.

ADDITIONAL INFORMATION

1. Save the Artic, Inc. made estimated tax payments attributable to 2019 of $45,000. The corporation also had a credit from an over payment of its prior year Federal income taxes of $12,000 that it elected to apply against its 2019 tax liability. Apply any over payment to 2020.

2. Ignore state income taxes.

3. Dividend income is from the following sources:

Go Cold Inc (Save the Guppies owns 75% of all outstanding stock)……….	$ 12,999
WeRtheWorld (owns 12% of all outstanding stock) …………………………..	20,000
SaveBears, Inc. (owns 25% of all outstanding) ……………………………….	17,001
Total…………………………………………………………………………………………		$		50,000
4.  An analysis of the Allowance for Doubtful Accounts reveals:
Balance, 01/01/19…………………………………………………………………………………………	$38,111
2019 Transactions–
Provision for bad debts…………………………………………………………………….	4,554
Recoveries of bad debts……………………………………………………………………	-0-
Accounts written off as uncollected…………………………………………………					(2,877)
………………………………………………………………………Balance,12/31/19			$39,788

5. Goodwill of $34,500 arose on purchase of another business on 01/31/17. Amortization is not being taken for financial purposes.

6. Assume that deductions for tax depreciation (i.e., Modified Accelerated Cost Recovery) for the year total $130,500. For this practice set do not complete Form 4562 (Depreciation and Amortization).

7. $94,530 of the Accrued Wages as of 12/31/18 were paid by 3/15/19. $92,547 of the Accrued Wages as of 12/31/19 were paid by 3/15/20. The M-1 should be adjusted through the Wage Expense.

 

8. Contributions included:

 

Save the Seal (a 501(c)(3) Org)…………………………………………………………..

 

Committee to Elect Senator Edward Greenpeace………………………………… Save the Whales Org (a 501(c)(3) Org)…………………………………………………

 

Total…………………………………………………………………………………………..

 

$4,150

 

1,200

 

2,873

 

$8,223

 

All contributions were paid in cash during the year except for Save the Whales Org contribution which was pledged by the corporation (i.e., approved by the Board of Directors) on December 2 7, 2019 and paid on March 30, 2020.

9. Included in interest income is $1,500 from Washington DC General Obligation Bonds held throughout the current year. These bonds are included in the marketable securities account.

10. On 05/07/19 the corporation sold 2,580 shares of SaveBears, Inc. common stock for $14,913. The stock had been purchased on 04/30/14 for $17,001.

11. Disregard any penalty on underpayment of estimated tax.

12. Meals expense related to various employee and owner lunches where they discussed various aspects of the business.

REQUIRED

From the above information, prepare Save the Guppies, Inc.’s 2019 Federal income tax return (Form 1120), including all needed supporting statements, schedules, and forms. Unless otherwise noted, assume Save the Guppies, Inc. follows the policies of making all elections to minimize its current income taxes and, to the extent possible, of conforming procedures for financial and tax accounting. Round amounts to the nearest dollar. If additional information is needed, make realistic assumptions and fill in all required data. The forms that you will need to complete include Forms 1120, 1125-A, 1125-E, Schedule D and Schedule G. These forms can be found at http://apps.irs.gov/app/picklist/list/formsPublications.html. Y o u are required to use the 2018 income tax forms (these are the most current ‘finalized’ forms available.   If you have any question, refer to your textbook to apply the most current law per South-Western 2020 Corporations, Partnerships, and Estates & Trusts. You will complete these forms in the PDF format. Just type or neatly write in the amounts on the various lines and then print those forms off when complete. I will not accept electronic documents. Instructions to the Forms can be very beneficial in the preparation of the tax forms.

 

Save the Guppies, Inc.

BALANCE SHEET

For the Year Ending December 31, 2019

				Beginning						Ending
ASSETS				of Year						of Year
Current Assets:
Cash & Marketable Securities		$		412,985	$					398,774
Accounts Receivables				178,954						187,954
Allowance for Doubtful Accounts				(38,111)						(39,788)
Inventory				315,874						305,111
Total Current Assets
				869,702						852,051
Machinery, Building and Land:
Machinery		$		458,784	$					475,880
Less: Accumulated Depreciation				(175,845)						(247,215)
Building				575,998						575,998
Less: Accumulated Depreciation				(136,557)						(151,326)
Land				98,547						98,547
Total Equipment, Building and Land
			$	820,927					$	751,884
Other Assets:										28,425
Goodwill				28,425
TOTAL ASSETS		$		1,719,054	$					1,632,360
LIABILITIES AND SHAREHOLDER EQUITY
Current Liabilities:
Accounts Payable		$		154,787	$					145,987
Accrued Wages				124,530						112,547
Note Payable (less than one year)				98,541						99,897
Total Current Liabilities
		$		377,858				$		358,431
Notes Payable (one year or more)				329,028						228,004
Total Liabilities		$		706,886				$		586,435
Common Stock (200,000 shares authorized, 19,702
shares issued and outstanding, $10 par)		$		98,754	$					98,754
Additional Paid in Capital				589,445						589,445
Retained Earnings				323,969						357,726
Total Shareholders’ Equity			$	1,012,168					$	1,045,925
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$		1,719,054	$					1,632,360

 

	STATEMENT OF RETAINED EARNINGS
Beginning Retained Earnings	$			323,969
Net Income for the Year				421,094
Dividend Paid in Cash				(387,337)
Ending Retained Earnings
			$	357,726

 

Save the Guppies, Inc.
INCOME STATEMENT
For the Year Ending December 31, 2019
Revenue:
Sales		$	13,750,000
Returns & Allowance			(29,887)
Net Sales			13,720,113
Purchases			(12,200,942)
Gross Profits					$			1,519,171
Operating Expenses
Officer Wages		$	248,053
Wage Expense			512,450
Rent Expense			36,000
Interest Expense			58,331
Penalty Expense			2,300
Advertising Expense			10,589
Contributions			8,223
Bad Debt Expense			4,554
Depreciation Expense			125,987
Officer’s Life Insurance Premiums			11,125
Payroll Taxes			64,993
Repairs and Maintenance			10,987
Meals			6,800
Miscellaneous Expense			15,997
Total Operating Expenses							$	(1,116,389)
Net Income from Operations						$		402,782
Other Income and Loss:
Dividend Income		$	50,000
Interest Income			3,150
Loss on the Sale of Stock			(2,088)					51,062
Net Income (Loss) before Income Tax			$					453,844
Federal Income Tax Expense								(32,750)
Net Income				$				421,094

 

You will need to take the information in these Financial Statements and prepare a Corporate Tax return.  All the information that is needed to complete the return is contained in these financial statements and footnotes.

Here are some check figures from the Form 1120:
Line 11 – Total Income:            1,570,821
Line 27 – Total deductions:      1,110,627
Line 30 – Taxable Income:         430,694

*Please note:  You are required to compute the tax return using the tax rules that we learned through the semester contained in the 2020 South-Western Corporations, Partnerships, Estates and Trusts Textbook.

You are required to complete these assignments using the South-Western material and class notes you have compiled during the semester.  You will not consult any third-party resources other than those identified
above.

The material contained in this assignment in strictly proprietary and the property of the instructor.  If this material or any portion of it is uploaded to any third-party websites or shared with any third-parties, outside of your peers, the instructor reserves the right to issue a zero on this assignment to all deemed to have violated these instructions.
Good luck to everyone.

 

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