Business 123A Corporate Tax Return Project

Asked by bizgrad
Dated: 20th Apr'17 04:12 PM
Bounty offered: $47.00

Corporate Tax Return Project

Facts

You (The Paid Tax Preparer)

Your name is Kyungwha Kim. You are a Senior Manager in the CPA firm of Tai Accountancy Corporation. Your preparer tax identification number is P00342277.

Your Firm (Who You Work For)

Tai Accountancy’s address is: 1120 Casanova Avenue – Monterey, CA 93940 and its phone number is (831) 555-5555. The firm’s EIN is: 46-4466111.

The Client

Your client is Moat Highba Corporation. Its address is: 1969 Spartan Way – San Jose, CA 95112. Its phone number is: (408) 555-5555. Moat Highba Corporation resells clothes washers, dryers and other home appliances at retail to homeowners. Moat Highba does not manufacture any of the items it sells to its customers.

Its Employer Identification Number is 46-1112233. It was incorporated in California on 12/1/1986. It is a privately-owned (non-public) corporation.

The only corporate officer authorized to sign its tax returns is Kristi Nashakana. Her social security number is 555-11-2345 and she is a citizen of the USA. She is the President of the corporation. Kristi owns 55% of the shares of the corporation. She has owned 55% of the shares since the corporation started in 1986. She spent 2,400 hours working for the corporation in 2016. She was paid gross wages of $120,000 in 2016. She received no bonuses or other incentive- based compensation in 2016. The $120,000 of wages was comprised entirely of her base salary. Kristi’s home address is 1033 Granite Road – Watsonville, CA 95076.

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The Chief Financial Officer, Treasurer and Secretary of the corporation is Suji Park. She also works as the corporation’s salesperson. She spent 2,200 hours working for the corporation in 2016. She was paid gross wages of $92,000 in 2016. Suji’s social security number is 222-44-1234 and her home address is 10 Balgogi Lane - Monterey, CA 93940. Suji does not own any shares in the corporation. She is a citizen of the United States.

There are no other officers for the corporation. In addition, the only shares in the corporation are in the form of common stock. There are no preferred shares.

There are two other shareholders in the corporation: Ryan Angelo and Evan Earl. Ryan owned 40% of the shares of the corporation throughout the year and Evan owned 5%. They have each owned the same percentage of the corporation’s stock since it was incorporated in 1986. Both Ryan and Evan are citizens of the United States. Ryan and Evan did not work for the corporation at all in 2016 as they were just holding the shares in the corporation as an investment.

Ryan’s social security number is 111-22-4444 and his home address is 452 Dekalb Street – Rio del Mar, CA 95003.

Evan’s social security number is 444-33-2222 and his home address is 1031 Likekind Way – Freedom, CA 95019.

Moat Highba uses the cash basis of accounting for both financial accounting and tax return purposes. In addition, it uses a calendar year for both financial accounting and tax purposes.

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Revenues

Gross sales:

Dividends:

Bank Account Interest:

Interest on U.S. Treasury Bonds:

San Mateo County, CA Bond Interest:

$825,000 $10,000

2016 Income Statement

Cost of Goods Sold

Inventory as of 1/1/16 of $100,000 Inventory purchased during 2016: $283,487 Inventory as of 12/31/16 of $220,000

[Note: All inventory figures are valued based on original cost and using the specific identification method (i.e., neither FIFO nor LIFO); IRC Sect. 263A (UNICAP) does not apply to the corporation; there were no changes in the method of valuing inventories; and there were no writedowns of subnormal goods in 2016.]

Other Expenses

Store rent:

Advertising Services:

Office Supplies: Repairsandmaintenance:$ 7,240 Depreciation: $ 2,100

$36,000 $59,438 $ 8,732

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Entertainment:

Employee meals

(While on business trips): Charitable Contributions

Wages (Kristi):

Wages (Suji):

Wages (other employees): $108,888 Federal Payroll Taxes: $8,330 Sales Tax Expense: $72,188 Other Income (Expense)

Loss on sale of Debt Investments Gain on the Sale of Business Assets

$ 6,000

$1,400 $9,500 $120,000

$92,000

1 Sold some of its San Mateo County bonds on 7/2/16 for $2,500. The bonds sold were purchased on 6/13/13 for $3,000. Moat Highba received an IRS Form 1099?B showing the sale of these bonds, but the tax basis of these bonds were not provided to the IRS on the 1099?B.

2 Purchased for $3,500 and placed in service on 4/19/99. Fully depreciated for financial accounting and tax purposes prior to 2016. Sold for $650 on 2/15/16.

$5001 $6502

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12/31/2015 Year-End Balance Sheet

Cash:

Inventory:

Stock in Anyong Haseyo Corp. U.S. Treasury Stock

San Mateo County Bonds Computer Sales System (Cost)3 Less: Accumulated Depreciation Fixed Assets – Net Book Value Liabilities

None

Shareholders’ Equity

Common Stock

Retained Earnings - Unappropriated

$1,120,569 $100,000 $15,000 $19,000 $20,000 $3,500

($3,500)

$0

$ 100,000 $1,174,569

3 Purchased for $3,500 and placed in service on 4/19/99. Fully depreciated for financial accounting and tax purposes prior to 2016. Sold for $650 on 2/15/16.

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12/31/2016 Year-End Balance Sheet

Assets

Cash:

Inventory:

Stock in Anyong Haseyo Corp. U.S. Treasury Stock

San Mateo County Bonds Pre-Paid Federal Inc. Tax4 Computer Sales System (Cost) Less: Accumulated Depreciation Fixed Assets – Net Book Value

Liabilities

None

Shareholders’ Equity

Common Stock

Retained Earnings – Unappropriated

$1,102,466 $220,000 $15,000

$19,000 $17,000 $34,000 $10,5005

($2,100) $8,400

$ 100,000 $1,315,866

4 2016 Federal estimated taxes were paid in 2016. They were paid in four installments as follows: $8,500 on 4/14/16; $8,500 on 6/15/16; $8,500 on 9/2/16 and $8,500 on 12/3/16.

5 Purchased and placed in service on 2/16/16. Moat Highba elects to take the maximum cost recovery on this asset in 2016 under IRC Sect 179, and if applicable, first?year bonus depreciation.

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Detailed Task

  1. 1) Usingonlythe blank forms available at: www.IRS.gov, prepare Moat Highba Corporation’s Federal income tax return for the 2016 Tax Year – including the following schedules and forms:
  2. ? Schedule D
  3. ? Form 1125-A
  4. ? Schedule G
  5. ? Form 1125-E
  6. ? Form 4562
  7. ? Form 4797
  8. ? Form 8949
  9. 2) For any part of the tax return where a statement is required, you must attach a statement to the end of the tax return as the last attachment to the return - with a reference to what line of the return it applies to.
  10. 3) Also, prepare and include filing extension forms for BOTH Form 1120 AND for the 1099 forms (two 1099-MISC forms and three 1099-DIV forms) for the 2016 tax year (attach these extensions behind the 1120 form (and behind the forms/schedules attached to the 1120)). If an extension form has a required date, use the date that would have been the last day that the extension form was required to be filed to be considered timely filed (i.e., a date earlier in the year).
  11. 4) All of the repairs and maintenance were performed to Moat Highba by another corporation (i.e., not subject to 1099-MISC reporting).
  12. 5) The entertainment expenses were for regular seats for San Jose Giants baseball games to take out current clients where they discuss business matters.
  13. 6) In addition to signing the tax return as the paid preparer, for purposes of this project also actually sign the return as the taxpayer as well.
  14. 7) For the 1099-series forms that you will turn in, you only need to complete the IRS copy (you do not need to complete all of the 1099 copies) of these 1099-series forms and attach them at the very end of the submitted return project. Also, prepare and complete the IRS Form(s) 1096 as well.
  15. 8) You do not need to prepare any W-2 forms or a W-3 for the client (Suji handles the payroll tax returns herself for the corporation).

Other Important Items:

1) The landlord for the store that Moat Highba rents is an individual – Hannibal Smith. Hannibal’s address is 444A Street – Menlo Park, CA 94025, and his tax ID is: 222-33- 6789.

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  1. 2) The advertising company that Moat Highba uses for all of its advertising services is “E- Z as E-R-San.” It is a general partnership. Its tax ID is 22-5544330, and its address is: 123 Jingtao Circle – Freedom, CA 95019.
  2. 3) Moat Highba Corporation is not a subsidiary in an affiliated group or a parent- subsidiary group.
  3. 4) Moat Highba Corp. purchased 800 shares in Anyong Haseyo Corporation, a U.S.-based corporation that specializes in the retail sales of pens, on January 5, 2000 for $15,000. Anyong Haseyo had 3,200 shares outstanding throughout 2016. On March 9, 2016, Moat Highba received a $10,000 dividend check from Anyong Haseyo Corporation. Anyong Haseyo Corporation’s Employer Identification Number is 77-8734444.
  4. 5) On February 15, 2016, Moat Highba sold a fixed asset, a cash register computer system that it originally purchased for $3,500 on April 19, 1999, for $650. It was fully depreciated for both book and tax purposes prior to 2016.
  5. 6) On January 2, 2016, Moat Highba purchased and placed into service a computer sales system for $10,500. $2,100 of financial accounting depreciation was taken on this fixed asset for 2016. Moat Highba elects to take the maximum cost recovery on this asset in 2016 under IRC Sect 179, and if applicable, first-year bonus depreciation.
  6. 7) All three shareholders in Moat Highba remained the same throughout the year and their ownership interests did not change during the year.
  7. 8) Moat Highba did not have any NOL or capital loss carryovers from prior years.
  8. 9) For Schedule K of Form 1120, you are given that the answers to question nos. 8,14, 17,
  9. and 18 are “no” and the checkbox to no. 8 is to be unchecked.

10) Your client has asked you to file the return with the least amount of required

schedules filled-out on the 1120 form as possible.

11) $10,000 of cash distributions from Moat Highba Corp. were made in 2016: $5,500

to Kristi, $4,000 to Ryan and $500 to Evan. All cash distributions were paid on

December 3, 2016.

12) On December 1, 1986, the corporation issued common stock to its three initial (and

still current) shareholders – with the three shareholders paying the following amounts

for the stock: $55,000 for Kristi; $40,000 for Ryan and $5,000 for Evan. 13) Your client allows you to discuss its tax return with the IRS.

Business 123A Corporate Tax Return Project
Answered by bizgrad
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Dated: 20th Apr'17 04:12 PM
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