John Smith, David Daniels, Mark Miller, and Judy Butler Tax return

John Smith, David Daniels, Mark Miller, and Judy Butler are equal owners in “PLUS, Inc.” – a corporation engaged in HR consulting. Pertinent information regarding PLUS is summarized below.

· Social security numbers are as follows; John – 558-98-4523; David – 345-63-5467; Mark – 234-91-1450; and Judy – 677-77-1678. John is the President of the company.

· The address of the company is 11 Juniper St., Wilmington, NC 26812.

· The company was incorporated and began operations on January 1, 2007.

· The business code is 561900.

· The federal identification number is 68-1894875

· The company uses the cash method of accounting and the calendar year for reporting.

· The company claimed $8,119 depreciation for book purposes, but $11,619 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.

· No compensation was paid to Daniels, Miller, or Butler, but 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.

· John Smith lives at 819 Azalea Dr., Wilmington, NC 26811, David Daniels lives at 800 Daffy Dr., Wilmington, NC 26812; Mark Miller lives at 250 Lakewood Rd., Wilmington, NC 26812; and Judy Butler lives at 170 Camilla Ave., Wilmington, NC 26812.

· 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 AIM Corporation (carried as Marketable Securities on the balance sheet) on October 15 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 JUNE Mutual Fund, 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 $755,000

Taxable qualified dividend income 4,600

Taxable business interest income 1,400

Tax Exempt interest 2,600

Proceeds from sale of XYZ Corp. common stock $ 5,000

Total Receipts $768,600

Cash Disbursements:

Compensation to Rick Sternberg $120,000

Dividend payments to shareholders ($35K each) 140,000

Customer Refunds 3.000

Office Rent 26,000

Utilities 6,700

Administrative employee salaries 310,000

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%) 2,600

Travel 9,000

Office supplies & expense 10,481

Accounting (Professional) fees 10,000

Advertising 5,000

Taxes (Payroll, State, Local) 29,600

Business interest (on equipment loan) 4,000

Principal payments on equipment loan 15,000

General Liability Insurance Expense 3,200

Equipment rental 5,000

Total Disbursements 762,581

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.

Principle 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, 201x December 31, 201x

Cash $ 86,576 $ ?

Tax-exempt securities(at cost) 52,000 52,000

Marketable Securities (at cost) 120,000 111,000

Office furniture & equipment 65,000 65,000

Accumulated depreciation ( 36,576) ________?

Total assets $ 287,000 $ ?

Nonrecourse equipment loan $ 47,000 $ 32,000

Common Stock $ 48,000 $ ?

Retained Earnings $ 192,000 $_______?

Total liabilities and capital $ 287,000 $ ?

REQUIRED: 1. Prepare a Form 1120 for the corporation 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 and current and accumulated depreciation entries).