Reference no: EM13860819
Rick Smith, Bill Thomas, Diane Asche, and Jill Renteria are equal owners in "STAR, Inc." - a corporation engaged in event planning services. Pertinent information regarding STAR is summarized below.
- Social security numbers are as follows; Rick - 648-98-4321; Bill - 486-63-4297; Diane - 855-21-1750; and Jill - 896-49-2341. Rick is the President of the company.
- The address of the company is 2835 Bay View Drive, Durham, NC 27705.
- The company was incorporated and began operations on January 1, 2011.
- The business code is 561900.
- The federal identification number is 67-1234576
- The company uses the cash method of accounting and the calendar year for reporting.
- The company claimed $8,119 depreciation for book purposes, but $14,919 for tax purposes (under a MACRS methodology). Assume none of the depreciation creates a tax preference or adjustment for AMT purposes. The company is NOT a personal holding company.
- All loan borrowings were used exclusively for acquisition of equipment, consequently, all interest is considered business interest.
- Each of the four owners withdrew $35,000 as a dividend of operating profits. There was no distribution of any non-cash property.
- The equipment loan is nonrecourse debt to the owners. All initial equity contributions were paid equally and each individual owns 25% of the common stock.
- None of the shareholders 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 North Carolina. All owners are U.S. citizens. The company had no foreign operations, no foreign bank accounts, and no interest in any foreign trusts or other corporations. The company is not publicly traded.
- The company is not subject to the consolidated audit procedures. The company files its return in Cincinnati, OH.
- Rick Smith lives at 2275 Knowles Ct., Durham, NC 27701, Bill Thomas lives at 4942 Richland Dr., Durham, NC 27702; Diane Asche lives at 132 Coastal Rd., Durham, NC 27704; and Jill Renteria lives at 5500 Rocker Ave., Raleigh, NC 27605.
- The company's marketable securities represent small investments (<1%) in a number of publicly traded companies and mutual funds.
-
- The company sold its holdings of XYZ Corporation (carried as Marketable Securities on the balance sheet) on September 10 for $5,000. The corporation purchased this investment several years ago for $9,000.
(The proceeds from this sale are listed as a cash receipt below. The company has no prior-year capital gains or losses.)
The current income statement for the company reflected book net income of $ 143,900 AFTER book depreciation has been taken on the equipment, and the loss on the sale of XYZ common stock, and $60,000 of recorded federal income tax expense. The following information was taken from the corporation's financial statements for the current year.
Cash Receipts:
Fees collected $758,000
Taxable qualified dividend income 2,600
Taxable business interest income 3,600
Tax Exempt interest 2,400
Proceeds from sale of XYZ Corp. common stock $ 5,000
Total Receipts $771,600
Cash Disbursements:
Compensation to Rick Smith $100,000
Compensation to Thomas, Asche, & Renteria ($33K each) 99,000
Dividend payments to shareholders ($35K each) 140,000
Customer Refunds 6,000
Office Rent 26,000
Utilities 6,700
Administrative employee salaries 231,000
Federal income tax payments ($15K/Qtr.) 60,000
Business & Professional Licenses 2,000
Cash Contribution to United Way (a 50% org.) 1,000
Meals & Entertainment (100%) 4,600
Travel 7,000
Office supplies & expense 9,000
Accounting (Professional) fees 10,000
Advertising 8,000
Taxes (Payroll, State, Local) 28,600
Business interest (on equipment loan) 4,481
Principal payments on equipment loan 15,000
General Liability Insurance Expense 3,200
Equipment rental 4,000
Total Disbursements 765,581
Journal entries have been made to record regular (book) depreciation in the amount of $8,119. MACRS tax depreciation was not recorded in the book records.
Principal payments against the equipment loan amounted to $15,000 for the year.
The balance sheets (book basis) for the company were as follows for the current year:
Account January 1, 2014 December 31, 2014
Cash $ 88,576 $ ?
Tax-exempt securities (at cost) 56,000 56,000
Marketable Securities (at cost) 120,000 111,000
Office furniture & equipment 70,000 70,000
Accumulated depreciation ( 34,576) ________?
Total assets $ 300,000 $ ?
Nonrecourse equipment loan $ 46,000 $ ?
Common Stock $ 51,000 $ ?
Retained Earnings $ 203,000 $_______?
Total liabilities and capital $ 300,000 $ ?
REQUIRED: 1. Prepare a Form 1120 for the corporation for 2014 including Form 4562. (Do NOT prepare a state return). Prepare supporting schedules as necessary if adequate information is provided. (Hint: If you use a tax software program, you may override the Form 4562 with asset current and accumulated depreciation entries).