Homework SourseDebbie Rader William Allen and Jeffrey Townsend are owners i
Debbie Rader, William Allen, and Jeffrey Townsend are owners in “RAT, Inc.” – a “C” Corporation engaged in pest control services. Pertinent information regarding RAT, Inc. is summarized below.
-Social security numbers are as follows; Debbie – 623-98-0123; William – 410-63-4297; Jeffrey – 855-21-1750. Debbie is the President of the company.
-The address of the company is 1421 Ocean View Drive, Anderson, ME 04842.
-The company was formed and began operations on January 1, 2013.
-The business code is 541990.
-The federal identification number is 67-4598288
-The corporation uses the cash method of accounting and the calendar year for reporting.
-The corporation recorded $14,002 depreciation for book purposes but $21,602 for income tax purposes (using MACRS methodology). Assume none of the depreciation creates a tax preference or adjustment for AMT purposes.
-All loan borrowings were used exclusively for acquisition of equipment, consequently, all interest is considered business interest.
-The owners original capital contributions are as follows: Rader - $100,000 for 50% ownership; Allen - $60,000 for 30% ownership; and Townsend $40,000 for a 20% ownership in the stock of the business. No capital contributions occurred in 2017.
-Salary payments were made to the owners as follows: Rader - $90,000, Allen and Townsend - $30,000 EACH.
-Each of the owners were paid a dividend as follows: Rader - $60,000; Allen - $36,000; Townsend - $24,000. There were no distributions of any non-cash property.
-The equipment loan is nonrecourse debt to the shareholders. .
-None of the stockholders sold any portion of their ownership interests during the year.
-The company has no available tax credits and is not subject to AMT. The company’s operations are entirely restricted to the local geographic area in Maine. All shareholders are U.S. citizens. The company had no foreign operations, no foreign bank accounts, and no interest in any foreign trusts or foreign corporations. The company’s stock is not publicly traded.
-The company is not subject to the consolidated audit procedures. The company files its federal tax return in Cincinnati, Ohio.
-Debbie Rader lives at 415 Knight Ct., Anderson, ME 04842, William Allen lives at 692 Radford Dr., Anderson, ME 04842; and Jeffrey Townsend lives at 342 Coastal Rd., Anderson, ME 04842.
-No ownership changes occurred during the year.
-The company’s marketable securities represent small investments (<1%) in a number of publicly traded companies and mutual funds. It sold its holdings of XYZ common stock (carried as Marketable Securities on the balance sheet) on July 20 for $15,000. The corporation purchased this investment several years ago for $25,000.
The current income statement for the corporation reflected book net income of $98,100 AFTER book depreciation has been taken on the equipment and the loss on the sale of XYZ common stock. The following information was taken from the partnership’s financial statements for the current year.
Cash Receipts:
Cash Disbursements:
The current income statement for the company reflects a book net income of been made to record regular depreciation in the amount of $14,002.
The balance sheets for the corporation were as follows for the current year:
REQUIRED: 1. Prepare a 2017 Form 1120 for the corporation including Schedule D and Form 4562. (Do NOT prepare a state return). Prepare supporting schedules as necessary if adequate information is provided. (Hint: If you use a computerized software program, you may override the Form 4562 with asset and current and accumulated depreciation entries).
| Service Fees Collected | $803,000 |
| Taxable dividend income | $6,600 |
| Taxable Business Interest Income | $2,400 |
| Tax Exempt Interest | $1,600 |
| Proceeds from sale of XYZ common stock | $15,000 |
| Total Receipts | $828,600 |
Solution
FORM 1120
Schd D
Other deduction detail
Balance sheet items
Notes for explanation
| 1 | 1a | Gross Receipt or Sale | 803,000.00 | ||||||||
| 1b | Return and allowances | 5,000.00 | |||||||||
| 1c | balance (1a-1b) | 798,000.00 | |||||||||
| 2 | Cost of good sold | - | |||||||||
| 3 | Gross Profit (2-1c) | 798,000.00 | |||||||||
| 4 | Dividend | 6,600.00 | |||||||||
| 5 | INTerest | 4,000.00 | |||||||||
| 11 | Total income. Add lines 3 through 10 | 808,600.00 | |||||||||
| 12 | Compensation of officers (see instructions—attach Form 1125-E) | 150,000.00 | |||||||||
| 13 | Salaries and wages (less employment credits) | 350,000.00 | |||||||||
| 14 | Repairs and maintenance | - | |||||||||
| 15 | Bad debts . | - | |||||||||
| 16 | Rents | 29,000.00 | |||||||||
| 17 | Taxes and licenses | 91,600.00 | |||||||||
| 18 | Interest | 1,600.00 | |||||||||
| 19 | Charitable contributions | 1,000.00 | |||||||||
| 20 | Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) | 14,002.00 | |||||||||
| 21 | Depletion | - | |||||||||
| 22 | Advertising | 18,000.00 | |||||||||
| 23 | Pension, profit-sharing, etc., plans . | - | |||||||||
| 24 | Employee benefit programs | 2,200.00 | |||||||||
| 25 | Domestic production activities deduction (attach Form 8903) | - | |||||||||
| 26 | Other deductions (attach statement) | 53,068.00 | |||||||||
| 27 | Total deductions. Add lines 12 through 26 | 710,470.00 | |||||||||
| 28 | Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11. | 98,130.00 | |||||||||
| 29a | Net operating loss deduction (see instructions | ||||||||||
| b | Special deductions (Schedule C, line 20) | ||||||||||
| c | Add lines 29a and 29b . | - | |||||||||
| 30 | Taxable income. Subtract line 29c from line 28. See instructions | 98,130.00 | |||||||||
