Return Preparation Problem 1
1. TRP.03.01
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1. Instructions
Form 1120, pages 1, 2 and 3
Form 1120, pages 4, 5 and 6
Form 1125-A
Schedule G
Schedule M-3
Form 1125-E
Federal Statements
X
Instructions
Note: This problem is for the 2020 tax year.
On November 1, 2009, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows:
· Pet Kingdom's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211; and its e-mail address is [email protected].
· The employer identification number is 11-1111112, and the principal business activity code is 453910.
· Janet and Kim each own 50% of the common stock; Janet is president and Kim is vice president of the company. No other class of stock is authorized.
· Both Janet and Kim are full-time employees of Pet Kingdom. Janet's Social Security number is 123-45-6788, and Kim's Social Security number is 123-45-6787.
· Pet Kingdom is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. Pet Kingdom uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes.
· During 2020, the corporation distributed cash dividends of $250,000.
Pet Kingdom's financial statements for 2020 are shown below.
Income Statement
Income
Gross sales
$5,750,000
Sales returns and allowances
(200,000)
Net sales
$5,550,000
Cost of goods sold
(2,300,000)
Gross profit
$3,250,000
Dividends received from stock
investments in less-than-20%-
owned U.S. corporations
43,750
Interest income:
State bonds
$15,000
Certificates of deposit
20,000
35,000
Total income
$3,328,750
Expenses
Salaries—officers:
Janet Morton
$262,500
Kim Wong
262,500
$525,000
Salaries—clerical and sales
725,000
Taxes (state, local, and payroll)
238,000
Repairs and maintenance
140,000
Interest expense:
Loan to purchase state bonds
$9,000
Other business loans
207,000
216,000
Advertising
58,000
Rental expense
109,000
Depreciation*
106,000
Charitable contributions (cash)
38,000
Employee benefit programs
60,000
Premiums on term life insurance
policies on lives of Janet Morton and
Kim Wong; Pet Kingdom is the
designated beneficiary
40,000
Total expenses
(2,255,000)
Net income before taxes
$1,073,750
Federal income tax
(221,734)
Net income per books
$852,016
* Depreciation for tax purposes is $136,000. You are not provided enough detailed data to complete a Form 4562 (depreciation). If you solve this problem using Intuit ProConnect, enter the amount of depreciation on line 20 of Form 1120.
Balance Sheet
Assets
January 1, 2020
December 31, 2020
Cash
$1,200,000
$1,039,461
Trade notes and accounts receivable
2,062,500
2,147,000
Inventories
2,750,000
3,030,000
Stock investment
1,125,000
1,125,000
State bonds
375,000
375,000
Certificates of deposit
400,000
400,000
Prepaid Federal tax
–0–
2,266
Buildings and other depreciable assets
5,455,000
5,455,000
Accumulated depreciation
(606,000)
(712,000)
Land
812,500
812,500
Other assets
140,000
128,500
Total assets
$13,714,000
$13,802,727
Liabilities and Equity
January 1, 2020
December 31, 2020
Accounts payable
$2,284,000
$1,840,711
Other current liabilities
175,000
155,000
Mortgages
4,625,000
4,575,000
Capital stock
2,500,000
2,500,000
Retained earnings
4,130,000
4,732,016
Total liabilities and equity
$13,714,000
$13,802,727
Required:
During 2020, Pet Kingdom made estimated tax payments of $56,000 each quarter to the IRS. Prepare Pet Kingdom's corporate tax return for tax year 2020 using Form 1120 (and any other appropriate forms and schedules).
· If an amount box does not require an entry or the answer is zero, enter "0".
· Enter all amounts as positive numbers, unless otherwise instructed.
· If required, round amounts to the nearest dollar.
· Make realistic assumptions about any missing data.
X
Form 1120, pages 1, 2 and 3
Complete Form 1120, pages 1, 2 and 3 for Pet Kingdom.
Form 1120
Department of the Treasury Internal Revenue Service
U.S. Corporation Income Tax Return
For calendar year 2020 or tax year beginning _ _ _ _ _ , 2020, ending _ _ _ _ _ , _ _ _
► Go to www.irs.gov/Form1120 for instructions and the latest information.
OMB No. 1545-0123
2020
A
1a
Check if:
Consolidated return (attach Form 851) . .
◻
TYPE
OR
PRINT
Pet Kingdom, Inc.
1010 Northwest Parkway
Dallas, TX 75225
B
Employer identification number
11-1111112
b
Life/nonlife consolidated return . .
◻
C
Date incorporated
2
Personal holding co. (attach Sch. PH) . . . .
◻
11/01/2009
3
Personal service corp. (see instrs) . . . . . . . .
◻
D
Total assets (see instructions)
$fill in the blank fa9f98fb2fe102e_1
4
Schedule M-3 attached
⌧
E Check if: (1) ☐ Initial return (2) ◻ Final return (3) ◻ Name change (4) ◻ Address change
INCOME
1a
Gross receipts or sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1a
fill in the blank fa9f98fb2fe102e_2
b
Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1b
fill in the blank fa9f98fb2fe102e_3
c
Balance. Subtract line 1b from line 1a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1c
fill in the blank fa9f98fb2fe102e_4
2
Cost of goods sold (attach Form 1125-A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
fill in the blank fa9f98fb2fe102e_5
3
Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
fill in the blank fa9f98fb2fe102e_6
4
Dividends and inclusions (Schedule C, line 23) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
fill in the blank fa9f98fb2fe102e_7
5
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
fill in the blank fa9f98fb2fe102e_8
6
Gross rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
7
Gross royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
8
Capital gain net income (attach Schedule D (Form 1120)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
9
Net gain or (loss) from Form 4797, Part II, line 17 (attach Form 4797) . . . . . . . . . . . . . . . . . . . . . . .
9
10
Other income (see instructions — attach statement) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
11
Total income. Add lines 3 through 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ►
11
fill in the blank fa9f98fb2fe102e_9
12
Compensation of officers (see instructions — attach Form 1125-E) . . . . . . . . . . . . . . . . . . . . . . . . . ►
12
fill in the blank fa9f98fb2fe102e_10
13
Salaries and wages (less employment credits) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
fill in the blank fa9f98fb2fe102e_11
14
Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
fill in the blank fa9f98fb2fe102e_12
15
Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
16
Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
fill in the blank fa9f98fb2fe102e_13
17
Taxes and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
fill in the blank fa9f98fb2fe102e_14
18
Interest (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
fill in the blank fa9f98fb2fe102e_15
19
Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
fill in the blank fa9f98fb2fe102e_16
20
Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562).
20
fill in the blank fa9f98fb2fe102e_17
21
Depletion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
22
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
fill in the blank fa9f98fb2fe102e_18
23
Pension, profit-sharing, etc., plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
24
Employee benefit programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
fill in the blank fa9f98fb2fe102e_19
25
Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
26
Other deductions (attach statement) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
27
Total deductions. Add lines 12 through 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ►
27
fill in the blank fa9f98fb2fe102e_20
28
Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11
28
fill in the blank fa9f98fb2fe102e_21
29a
Net operating loss deduction (see instructions) . . . . . . . . . . . . . . . . . . . .
29a
b
Special deductions (Schedule C, line 24) . . . . . . . . . . . . . . . . . . . . . . . .
29b
fill in the blank fa9f98fb2fe102e_22
c
Add lines 29a and 29b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29c
fill in the blank fa9f98fb2fe102e_23
30
Taxable income. Subtract line 29c from line 28. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
fill in the blank fa9f98fb2fe102e_24
31
Total tax (Schedule J, Part I, line 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
fill in the blank fa9f98fb2fe102e_25
32
2020 net 965 tax liability paid (Schedule J, Part II, line 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
33
Total payments, credits, and section 965 net tax liability (Schedule J, Part III, line 23) . . . . . . . . . . . .
33
fill in the blank fa9f98fb2fe102e_26
34
Estimated tax penalty. See instructions. Check if Form 2220 is attached . . . . . . . . . . . . . . . . . . . ► ◻
34
35
Amount owed. If line 33 is smaller than the total of lines 31, 32, and 34, enter amount owed . . . . . .
35
36
Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid . . . . .
36
fill in the blank fa9f98fb2fe102e_27
37
Enter amount from line 36 you want: Credited to 2021 estimated tax ►
Refunded ►
37
fill in the blank fa9f98fb2fe102e_28
Sign
Here
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
►
►
May the IRS discuss this return with the preparer shown below? See instructions. ◻ Yes ◻ No
Signature of officer
Date
Title
Paid Preparer Use Only
Print/Type preparer's name
Preparer's signature
Self-Prepared
Date
Check ◻ if...