ACCT 6113 - S Corporation Tax Return Problem-Prepare Form 1120 S return for Douglas Plastics Co

ACCT 6113 - S Corporation Tax Return Problem-Prepare Form 1120 S return for Douglas Plastics Co

Question # 00025547 Posted By: steve_jobs Updated on: 09/09/2014 01:24 AM Due on: 09/21/2014
Subject Accounting Topic Accounting Tutorials:
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Prepare Form 1120 S return for Douglas Plastics Co
Prepare work papers reconciling book income to taxable income. You can accomplish
this by creating trial balance and adjusted journal entries.
Explain you answers. Do not write long essays. Show your calculations and provide
your conclusion in a succinct format
Attach appropriate Tax Forms
Please work individually
If you have an access, you may use tax return preparation software.
Return is for 2013 tax year.
FORM 1120S – U.S. INCOME TAX RETURN FOR AN S CORPORATION

On March 12, 1992, Douglas Plastics Co., which is located at 2400 Lakeview Street, Fargo,
North Dakota, 58103, (312) 555-8697, fi led an election under Code Sec. 1362(a) to be treated
as an S corporation.
Douglas Plastics Co. was incorporated January 1, 1992, under the laws of the State of North
Dakota. It is engaged in the manufacture of plastic products, principally toys (principal business
activity code number 326100). All of its income is from sources within the United States. Its
employer identification number is 31-0031258.
In 2013, the corporation had two equal stockholders and each devoted 100% of their time to the
business. There were no changes in stock ownership during 2013, and each stockholder owned
1250 shares of the corporation. One of these stockholders, Douglas Pratt, served as president.
He resides at 660 Springsteen Street, Fargo, North Dakota 58103. His social security number is
555-11-6789. The other stockholder, Rickie L. Jones, served as vice president. He resides at
425 State Street, Fargo, North Dakota, 58103. His social security number is 555-33-9876. In
2013, Mr. Pratt’s compensation was $50,000 and Mr. Jones’ compensation was $46,000.
The corporation hired the outside firm of ATOZ Accounting Services (EIN 21-7777777) located
at 1120 Main Street in Waytogo, North Dakota, 58103, (701) 555-1120, to prepare its income tax
return on the accrual basis. Dewey Fugim prepared the return. Mr. Fugim (Preparer Tax
Identification Number P12345678) is new to the firm and Mr. Pratt is uncomfortable with him
discussing the tax return with the IRS without his knowledge and decides not to give him tax
return preparer permission.

1

Form 4562
On January 3, 2012, Douglas acquired molds and patterns at a cost of $12,000. The molds and
patterns are three-year MACRS property depreciated using the 200% declining balance method
and a half-year convention. Bonus depreciation was not claimed because the assets are used.
No Code Sec. 179 expense deduction was taken. The 2013 depreciation deduction on the
molds and patterns amounts to $5,333. A $4,000 depreciation deduction was claimed in 2012.
On June 18, 2011, used but reconditioned seven-year MACRS machinery was acquired at a
cost of $138,500. Douglas elected to depreciate the machinery using the alternative
depreciation method with an 11-year recovery period. No bonus depreciation was claimed and
no Code Sec. 179 expense was elected for this property. The 2013 depreciation deduction on
the machinery is $12,591. Accumulated depreciation at the beginning of 2013 is $18,892.
On February 11, 2013, Douglas acquired seven-year MACRS office furniture and fixtures at a
cost of $4,000. Douglas elects to expense the entire amount under Code Sec. 179.
On January 2, 1995, Douglas acquired a brick storage building at a cost of $110,000. The
building is depreciated using the straight-line method over a 31½ year life. The 2013
depreciation deduction on the building amounts to $3,492. Accumulated depreciation at the
beginning of 2013 is $55,729.
Form 4797
On January 30, 2013, Douglas sold machinery for $3,500. The machinery, which is 7-year
MACRS property, was purchased on January 14, 2007 for $10,000 and depreciated using the
200-percent declining-balance method and a half-year convention. Accumulated depreciation
was $7,323 on the date of sale.
On January 18, 2013, Douglas sold a building for $62,500. The building was acquired on
January 10, 1995, at a cost of $90,000. Douglas has accumulated depreciation on the building
of $45,597 at the beginning of 2013. Also, on January 18, 2013, the corporation sold the land
associated with the building for $13,000. The land was acquired at a cost of $10,000.
Charitable Contributions
The following charitable contributions to 50% organizations located in Fargo, North Dakota were
made by the corporation in 2013.
Community Fund, $500;
Mercy Hospital, $500;
Congregational Church, $250; and
Boy Scouts of America, $250.


Distributions
The corporation made cash distributions of $80,000 on March 12, 2013, and $120,000 on May
5, 2013. The distributions were in proportion to stock holdings.

From 1120S – Schedule D
The corporation sold 100 shares of Nicole Co. stock on January 16, 2013, for $7,775. The stock
was purchased on March 12, 1995, for $9,689.
ADJUSTED TRIAL BALANCE
The following is the adjusted trial balance of Douglas Plastics Co. as of December 31, 2013:
Debit
Gross Sales
Return & Allowances
Inventory Adjustment (1)
Purchases
Factory Sales & Wages
Freight Expense
Factory Insurance
Factory Utilities
Factory Water (Form 1125A
Other Costs)
Factory Payroll Taxes?
Factory Real Estate Taxes?
Dividends Received Domestic
(2)
Interest On US Obligations (2)
Interest on Tax Exempt Bonds
Expense Related to Tax
Exempt Bonds
Other Interest (2)
Gross Rents (3)
Loss on Sale of Stock (4)
Gain on Sale of Building (4)
Gain on Sale of Land (4)
Gain on Sale of Machine (4)
Bad Debts
Rents Paid
Motor Vehicle Tax
Employment Taxes
Franchise Tax
Real Property Tax
Charitable Contributions
Employee Health Insurance
Costs
3

Credit
692,759.00
7,360.00
6,565.00
100,650.00
180,235.00
950.00
4,200.00
10,850.00
1,150.00
16,110.00
5,000.00
788.00
2,990.00
1,635.00
90.00
472.00
4,000.00
1,914.00
18,216.00
3,000.00
823.00
4,500.00
1,200.00
100.00
11,157.00
300.00
1,680.00
1,500.00
34,000.00

Depreciation
Postage
Office Supplies
Telephone
Meals & Entertainment
(subject to 50% Limitation)

25,982.00
4,683.00
3,760.00
4,630.00
6,600.00
Debit

Shareholder Distribution
3/12/11
Shareholder Distribution
5/5/11
Officer Salaries
Salaries & Wages of
Marketing & Administration
Repairs
Interest Paid
Advertising
Pension Plan Contributions
Cash
Closing Inventory
Notes & Accounts Receivable
Prepaid Insurance
North Dakota Municipal Bonds
US Series EE Bonds
100S Nicole Co Common
Stock
Brick Storage Bldg (Acquired
1/2/95)
Factory Equipment (Acquired
6/18/09)
Molds and Patterns (Acquired
1/3/10)
Furniture and Fixtures
(Acquired 2/11/11)
Accumulated Depreciation
Land
Accounts Payable
Short Term Notes Payable to
Banks
Accrued Payroll Taxes
Long Term Notes Payable
Capital Stock
Accumulated Adjustments
Account (1/1/12) (5)
Other Adjustment Account
(1/1/12)(5)
Total


Credit
80,000.00
120,000.00
96,000.00
39,446.00
3,694.00
13,620.00
3,500.00
8,805.00
60,662.00
125,330.00
19,210.00
300.00
30,000.00
24,450.00
9,700.00
110,000.00
138,500.00
12,000.00
4,000.00
104,037.00
20,000.00
90,749.00
10,000.00
4,410.00
210,000.00
5,000.00
190,734.00
1,640.00

1,347,818.00

1,347,818.00

1 Inventory adjustment: The inventory adjustment figure represents the difference between the
opening inventory and the closing inventory. This figure, as such, will not appear on the return.
The inventories are taken at cost or market, whichever is lower. There was no change in
determining the quantities, cost or valuations between the opening and closing inventory.
2 Dividends received; U.S. obligations interest; Other interest: The Nicole Co. dividend income
of $788, the interest earned on the U.S. Series EE Bonds of $2,990, and the other interest of
$472 from Fargo National Bank, is portfolio income. As such, these items are reported on
Schedules K and K-1.
3 Gross rents: The gross rents of $4,000 represent gross income from a rental activity other
than real estate and are reported on Schedules K and K-1. There were no related expenses.
4 Stock sale loss; Building sale gain; Land sale gain; Machine sale gain: For purposes of
reporting these items on Form 1120S, it is necessary to first report each of them either on
Schedule D or on Form 4797, as applicable. The capital loss and any Code Sec. 1231 gain are
reported on Schedules K and K-1.
5 Accumulated adjustments account; Other adjustments account: The amount of the “Retained
earnings” as reported on Line 24, column (b) of Schedule L is the sum of the Accumulated
Adjustments account and the Other Adjustments account at the beginning of 2013. Schedule M2 must be completed to determine the amount reported on Line 24, column (d) of Schedule L.
The following is a balance sheet for Douglas Plastics Co. as of December 31, 2012:
Assets
Cash
Notes and Accounts
Receivable
Inventories
Prepaid Insurance
US Series E Bonds
North Dakota Municipal Bonds
Loans to Shareholders
200 Shares Nicole Common
Buildings & Other Depreciable
Assets
Accumulated Depreciation
Land
Liabilities & Capital
Accounts Payable
Short Term Notes Payable To
Banks
Accrued Payroll Taxes
Long Term Notes
Capital Stock
Accumulated Adjustments
Account

5

Dr

Cr
50,706.00
94,210.00
118,765.00
530.00
10,368.00
30,000.00
2,000.00
19,389.00
360,500.00
131,094.00
30,000.00
155,905.00
20,000.00
2,095.00
210,000.00
5,000.00
190,734.00

Other Adjustment Account
Total

716,478.00

1,640
716,478

Douglas Plastics Co. filed all other necessary information and tax returns for 2013, including Form 1096 and Form 1099.

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