Reference no: EM131035479

Bottle-Up, Inc., was organized on January 8, 2000, and made its S election on January 24, 2000. The necessary consents to the election were filed in a timely manner. Its federal tax identification number is 38-1507869. Its address is 1234 Hill Street, Gainesville, FL 32607. Bottle-Up uses the calendar year as its tax year, the accrual method of accounting, and the first-in, first-out (FIFO) inventory method. Bottle-Up manufactures ornamental glass bottles. It made no changes to its inventory costing methods this year. It uses the specific identification method for bad debts for book and tax purposes. Herman Hiebert (S.S. No. 123-45-6789) and Melvin Jones (S.S. No. 100-67-2000) own 500 shares each. Both individuals materially participate in Bottle-Up's single activity. Herman Hiebert is the tax matters person. Financial statements for Bottle-Up for the current year are shown in Tables C:11-2 through C:11-4. Assume that Bottle-Up's business qualifies as a U.S. production activity and that its qualified production activities income is $90,000. The S corporation uses the small business simplified overall method for reporting these activities (see discussion for Line 12d of Schedules K and K-1 in the Form 1120S instructions). Prepare a current year S corporation tax return for Bottle-Up, showing yourself as the paid preparer.

TABLE C:11-2

Bottle-Up, Inc. Income Statement for the Year Ended December 31 of the Current

Year (Problem C:11-63)

Sales $2,500,000

Returns and allowances (15,000 )

Net sales $2,485,000

Beginning inventory $ 102,000

Purchases 900,000

Labor 200,000

Supplies 80,000

Utilities 100,000

Other manufacturing costs 188,000 a

Goods available for sale $1,570,000

Ending inventory (96,000 ) 1,474,000 b

Gross profit $1,011,000

Salaries c $ 451,020

Utilities expense 54,000

Depreciation (MACRS depreciation is $36,311) 11,782

Automobile and truck expense 26,000

Office supplies expense 9,602

Advertising expense 105,000

Bad debts expense 620

Rent expense 30,000

Interest expense d 1,500

Meals and entertainment expense 21,000

Selling expenses 100,000

Repairs and maintenance expense 38,000

Accounting and legal expense 4,500

Charitable contributions e 9,000

Insurance expense f 24,500

Hourly employees' fringe benefits 11,000

Payroll taxes 36,980

Other taxes 2,500

Penalties (fines for overweight trucks) 1,000 (938,004)

Operating profit $ 72,996

Other income and losses:

Long-term gain on sale of capital assets $ 48,666g

Sec. 1231 loss (1,100) h

Interest on U.S. Treasury bills 1,200

Interest on State of Florida bonds 600

Dividends from domestic corporations 11,600

Investment expenses (600) 60,366

Net income 133,362

a. Total MACRS depreciation is $74,311. Assume that $38,000 of depreciation has been allocated to cost of sales for both book and tax purposes so that the book and tax inventory and cost of sales amounts are the same. The AMT depreciation adjustment on personal property is $9,000.

b. The cost of goods sold amount reflects the Uniform Capitalization Rules of Sec. 263A. The appropriate restatements have been made in prior years.

c. Officer salaries of $120,000 are included in the total. All are employer's W-2 wages.

d. Investment interest expense is $500. All other interest expense is trade- or business-related. None of the interest expense relates to the production of tax-exempt income.

e. The corporation made all contributions in cash to qualifying charities.

f. Includes $3,000 of premiums paid for policies on lives of corporate officers. Bottle-Up is the beneficiary for both policies.

g. The corporation acquired the capital assets on March 3, 2007 for $100,000 and sold them on September 15, 2009, for $148,666.

h. The corporation acquired the Sec. 1231 property on June 5, 2008 for $10,000 and sold it on December 21, 2009, for $8,900.

TABLE C:11-3

Bottle-Up, Inc. Balance Sheet for January 1 and December 31 of the Current Year

(Problem C:11-63)

January 1 December 31

Assets:

Cash $ 15,000 $116,948

Accounts receivable 41,500 45,180

Inventories 102,000 96,000

Stocks 103,000 74,000

Treasury bills 15,000 16,000

State of Florida bonds 10,000 10,000

Building and equipment 374,600 375,000

Minus: Accumulated depreciation (160,484) (173,100)

Land 160,000 190,000

Total $660,616 $750,028

Liabilities and equities:

Accounts payable $ 36,000 $ 10,000

Accrued salaries payable 12,000 6,000

Payroll taxes payable 3,416 7,106

Sales taxes payable 5,200 6,560

Due to Mr. Hiebert 10,000 5,000

Mortgage and notes payable (current maturities) 44,000 52,000

Long-term debt 210,000 260,000

Capital stock 10,000 10,000

Retained earnings 330,000 393,362

Total $660,616 $750,028

TABLE C:11-4

Bottle-Up, Inc. Statement of Change in Retained Earnings, for the Current Year

Ended December 31 (Problem C:11-63)

Balance, January 1 $330,000a

Plus: Net income $133,362

Minus: Dividends (70,000 ) 63,362

Balance, December 31 $393,362

a. The January 1 accumulated adjustments account balance is $274,300."