Corporate Tax Return Project
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.
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.
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.
Bank Account Interest:
Interest on U.S. Treasury Bonds:
San Mateo County, CA Bond Interest:
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 $220,000
[Note: All inventory figures are valued based on original cost and using the specific identification method (i.e., neither FIFO nor LIFO); IRC Sect. 263A (UNICAP) does not apply to the corporation; there were no changes in the method of valuing inventories; and there were no writedowns of subnormal goods in 2016.]
Office Supplies: Repairsandmaintenance:$ 7,240 Depreciation: $ 2,100
$36,000 $59,438 $ 8,732
(While on business trips): Charitable Contributions
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
$1,400 $9,500 $120,000
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.
12/31/2015 Year-End Balance Sheet
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
Retained Earnings - Unappropriated
$1,120,569 $100,000 $15,000 $19,000 $20,000 $3,500
$ 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.
12/31/2016 Year-End Balance Sheet
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
Retained Earnings – Unappropriated
$1,102,466 $220,000 $15,000
$19,000 $17,000 $34,000 $10,5005
$ 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.
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.
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.