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Portfolio Project: Trust and Estates - Part 1 (175 Points)

For this assignment, you will complete two tax returns (Corporation Return and Partnership Return), for 175 points each. You may use the tax software found at http://accountants.intuit.com/tax/proseries/ 

Please note there is a limit of 5 returns per session.

PART I – Tax Return #1, Corporate Return
 
Background

Jane Collier, James Taye, and Steve Allwine each own one-third of the common stock of Tasty Treats and Beverages. The corporation was incorporated on April 3, 2004. It has only one class of stock outstanding and operates as a C corporation for tax purposes. Tasty Treats and Beverages caters kid-friendly social events.

  • Located at 1215 Blue Horizon, Dallas, TX 12234.
  • Employer Identification Number is 12-34567890.
  • Business activity is catering food. Its business activity code is 722300.
  • The shareholders also work as officers for the corporation as follows:
    • Jane is the chief executive officer and president (Social Security number 242-62-5786).
    • James is the executive vice president and chief operating officer (Social Security number 563-58-8923).
    • Steve is the vice president of finance (Social Security number 575-58-1572).
  • All officers devote 100% of their time to the business
  • All officers are U.S. citizens.
  • Use the accrual method of accounting and have a calendar year-end.
  • Four equal estimated tax payments of $28,000 each quarter. Its tax liability last year was $85,000.
  • If it has overpaid its federal tax liability, the corporation would like to receive a refund.
  • Dividend paid of $20,000 to its shareholders on October 1. The Corporation had ample earnings and profits (E&P) to absorb the distribution.

Financial Statements

Tasty Treats and Beverages, Inc.

Income Statement

For year ended December 31, 2013

   

Revenue from sales

 

                               1,500,000

Sales returns and allowances

 

                                   (25,000)

Cost of goods sold

 

                                 (325,000)

Gross profit from operations

 

                               1,150,000

   

Other Income:

  

Capital loss

 

                                     (7,500)

Dividend income

 

                                     15,000

Interest income

 

                                     12,000

Gross income

 

                               1,169,500

   

Expenses:

  

Compensation

 

                                 (750,000)

Depreciation

 

                                   (12,000)

Bad debt expense

 

                                     (7,800)

Meals and entertainment

 

                                     (3,000)

Maintenance

 

                                     (2,500)

Property taxes

 

                                   (10,000)

State income taxes

 

                                   (30,000)

Other taxes

 

                                   (11,000)

Rent

 

                                   (28,000)

Interest

 

                                     (7,300)

Advertising

 

                                     (6,200)

Professional services

 

                                     (5,000)

Employee benefits

 

                                     (8,000)

Supplies

 

                                     (2,500)

Other expenses

 

                                     (1,750)

Total expenses

 

                                 (885,050)

 

  

Income before taxes

 

                                   284,450

Federal income tax expense

 

                                     96,713

Net income after taxes

 

                                   187,737

  • Tasty Treats and Beverages, Inc.

    Balance Sheet

    December 31, 2013

         

    ASSETS

     

     January 2013

     

    December 2013

    Cash

     

                                                           175,000

     

                                                 190,000

    Accounts Receivable

     

                                                             63,000

     

                                                    54,000

    Allowance for doubtful accounts

     

                                                             (8,000)

     

                                                    (7,000)

    Inventory

     

                                                           225,000

     

                                                 275,000

    US government bonds

     

                                                             30,000

     

                                                    25,000

    State and local bonds

     

                                                             50,000

     

                                                    50,000

    Investments in stock

     

                                                           325,000

     

                                                 335,000

    Fixed assets

     

                                                           475,000

     

                                                 485,000

    Accumulated depreciation

     

                                                         (198,000)

     

                                               (215,000)

    Other assets

     

                                                             11,000

     

                                                    12,000

    Total assets

     

                                                       1,148,000

     

                                              1,204,000

         

     

    Liabilities and Stockholder's Equity

        

    Accounts payable

     

                                                           225,000

     

                                                 200,000

    Other current liabilities

     

                                                           135,000

     

                                                 55,000

    Other liabilities

     

                                                             75,000

     

                                                    68,263

    Capital stock

     

                                                           250,000

     

                                                 250,000

    Retained earnings

     

                                                           463,000

     

                                                 630,737

    Total liabilities and stockholder's equity

     

                                                       1,148,000

     

                                              1,204,000

         

    Additional Information

    • Inventory-related purchases during 2013 were $175,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of §263A do not apply.
    • Of the $12,000 interest income, $1,500 was from a City of Dees bond that was used to fund public activities (issued in 2011), $1,750 was from an Border city bond used to fund private activities (issued in 2004), $2,500 was from a U.S. Treasury bond, and the remaining $6,250 was from a money market account.
    • Dividend income came from ABC Inc. Owned 10,000 shares of the stock in ABC Inc. at the beginning of the year. This represented 10 percent of outstanding stock.
    • On September 1, 2013, the corporation sold 1,000 shares of its ABC stock for $15,000. It had originally purchased these shares on June 13, 2006, for $7,500. After the sale, the Corporation owned 9 percent of ABC.
    • compensation is as follows:
      • Jane $175,000
      • James $150,000
      • Steve $150,000
      • Other $275,000
    • The Corporation wrote off $10,000 in accounts receivable as uncollectible during the year.
    • Regular tax depreciation was $28,000. None of the depreciation should be claimed on Form 1125A.
    • The $7,300 interest expense was from a business loan.
    • Other expenses include $3,000 for premiums paid on term life insurance policies for which Tasty Treats and Beverages, Inc. is the beneficiary. The policies cover the lives of Jane, James, and Steve.
  • Portfolio Project: Trust and Estates - Part 2 (175 Points)

    PART II – Tax Return #2, Partnership Return (Form 1065, only Page 1 and Schedule K required)

    Background

    The Rowdy Fun is a limited partnership and was formed on June 1, 2005, by Thomas Kyle, its general partner, and two other limited partners when they each contributed an equal amount of cash to start the new enterprise. Rowdy Fun is an outdoor equipment retailer focused on selling outdoor activities gear. Thomas has a 33.33% profits and capital interest and the limited partners hold the remaining 66.66% of the profits and capital interests. Their profits and capital interests have remained unchanged since the partnership was formed. Thomas is actively involved in managing the business while the limited partners are simply investors.

    • Rowdy Fun is located at 8955 Golden Drive, Sunnydale, AZ 34592.
    • The employer identification number for Rowdy Fun is 47-8593563.
    • Rowdy Fun uses the accrual method of accounting and has a calendar year end.
    • Thomas' address is 853 Crystal Drive, Sunnydale, AZ 34592.

    Additional Information

    • Rowdy Fun has total assets of $1,900,000 and total liabilities of $550,000 at the beginning of the year and total assets of $2,300,00 and total liabilities of $725,000 at the end of the year.
    • Partnership liabilities consist of accounts payable, and Thomas, as general partner, is legally responsible for paying these liabilities if the partnership does not.
    • Five years ago, Rowdy Fun purchased an original outdoor statue with the intent for display in the store. In 2013, the statue was sold. The $15,000 recognized gain from the sale is reflected in the income statement.
    • For tax purposes, Rowdy Fun has consistently elected under Section 179 to expense any furniture or fixtures purchased every year since it was formed. There is no tax basis in any of its depreciable assets. This year, Rowdy Fun expensed $23,000 of signs and display cases for tax purposes.
    • On November 20th, Rowdy Fun distributed $90,000 ($30,000 per partner) to the partners.
    • Miscellaneous expenses include a $1200 fine for violating a local ordinance.
    • Rowdy Fun maintains its books using generally accepted accounting principles.

    Financial Statements


    Rowdy Fun

    Income Statement

    For year ended December 31, 2013

       

    Sales

     

                                       975,000

    Sales returns and allowances

     

                                       (25,000)

    Cost of goods sold

     

                                     (300,000)

    Gross profit from operations

     

                                       650,000

       

    Other Income:

      

    Interest from Money Market

     

                                            3,500

    Gain for sale of statue

     

                                         15,000

    Gross income

     

                                       668,500

       

    Expenses:

      

    Employee wages

     

                                     (125,000)

    Interest on accounts payable

     

                                         (2,000)

    Payroll and property taxes

     

                                       (45,000)

    Supplies

     

                                       (26,000)

    Rent on retail building

     

                                       (20,000)

    Depreciation on furniture and fixtures

     

                                       (15,400)

    Advertising

     

                                         (4,000)

    Guaranteed payments to Thomas Kyle

     

                                       (40,000)

    Utilities

     

                                       (16,000)

    Accounting and legal services

     

                                         (5,000)

    Meals and entertainment

     

                                             (500)

    Charitable Contributions

     

                                             (375)

    Miscellaneous expense

     

                                             (425)

    Total expenses

     

                                     (299,700)

     

      

    Net Income for Books

     

                                       368,800

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