ACC Tax Return Problem 14-112: KJJ Corp.

Tax Return Problem 14-112:

KJJ Corp. was formed on October 10, 1998 by Kimberly Jen (123-45-6789), Jennifer James (234-56-7890) and James Kim (345-067-8901). It is a hardware store and it is located at 175 Clerk Road, Newtown, OH 45105. KJJ’s employer identification number is 10-1010101 and its business code is 444130. KJJ’s telephone number is (513) 525-1234 and its email address is K..p@kjj.com.

KJJ Corp. uses the calendar year and the accrual basis. It uses straight-line depreciation for tax and book purposes and FIFO and lower-of-cost-or-market for inventory purposes.

Kimberly, Jennifer, and James each receive 200 shares of KJJ Corp.’s common stock on October 10, 1998. No other stock has been issued or is outstanding. Each is a fulltime employee of the firm and each is paid $200,000.

KJJ Corp. mad a $105,000 ($35,000 to each owner) cash distribution in 2011.

During 2011, KJJ Corp. made estimated federal tax payments of $55,000 each quarter.

Financial information for 2011 follows:

Income Statement

Income

Sales$5,400,000

Sales returns and allowances20,000

Net Sales$5,380,000

Cost of goods sold3,120,000

Gross profit2,260,000

Interest income

Corporate bonds$20,000

State bonds60,00080,000

Dividend income100,000

Total income$2,440,000

Expenses

Salaries-Officers$600,000

Salaries and wages- Other510,000

Life insurance premiums on three owners/officers KJJ Corp. is the beneficiary20,000

Repairs and maintenance30,000

Taxes (state, local, payroll)249,000

Interest expense

Loans to acquire state bonds$25,000

Other47,00072,000

Advertising36,000

Charitable contributions25,000

Depreciation120,000

Employee benefits program63,000

Total expenses1,725,000

Net income before taxes$715,000

Federal income taxes(214,200)

Net income per books$500,800

Balance Sheet

12/31/1012/31/11

Assets:

Cash$400,000$550,000

Trade and accounts receivables600,000623,000

Inventories1,500,0001,330,000

Corporate bonds250,000260,000

State bonds800,000851,000

Stock (<20% owned, domestic corporations)900,0001,000,000

Prepaid federal income taxes05,800

Property, plant, and equipment3,000,0003,030,000

Accumulated depreciation(1,100,000)(1,220,000)

Land50,00050,000

Other assets6,0003,000

Total assets$6,406,000$6,482,800

Liabilities and Owner’s Equity

Accounts payable$301,000$257,000

Other current liabilities405,000430,000

Mortgages1,500,0001,200,000

Capital stock3,000,0003,000,000

Retained earnings1,200,0001,595,800

Total liabilities and owner’s equity$6,406,000$6,482,800

Prepare KJJ Corp’s Form 1120 and related schedules – Schedules A, C, E, J, K, L, M-1, and M-2. (Do not complete Form 4562 [depreciation calculation] since you do not have all the information). Go to www.irs.gov and download the necessary forms.