Form 1120 and schedule k

Completing Form 1120S

INSTRUCTIONS

Please use the information below to complete Form 1120S and the Schedule K-1%u2019s for Form 1120S. Blank forms can be found on the Hands-On Assignment page or in Doc Sharing. If you have a tax software package, please feel free to use it, but be aware that I will not be able to answer specific questions about the software package.

GENERAL COMPANY INFORMATION

Margaret Brown and Joel Lee each own 50% of Designs Inc. with no other class of stock authorized. On June 6, 2009, they formed to provide design services. Their business activity code is 541400.

Designs Inc.%u2019s business address is 2134 Merry Lane, Las Cruces, NM 08801. The telephone number is (575) 541-1122, and the e-mail address is designsinc@cdi.com.

The employer identification number is 11-1111111. Margaret is the president of the company, and Joel is the vice president. Margaret and Joel are the only full-time designers employed by Designs, Inc., and they perform all of the design services of the corporation. Margaret%u2019s Social Security number is 123-45-6789, and Joel%u2019s Social Security number is 555-48-9898.

Designs Inc. is an accrual method, calendar-year taxpayer. Designs Inc. uses the straight-line method of depreciation for both book and tax purposes. (You are not provided enough detailed data to complete a Form 4562 (depreciation). Enter the amount of depreciation on line 20 of Form 1120.) The corporation does not maintain any inventory.

During the year, the corporation distributed cash dividends of $15,192.

Designs Inc. Income Statement

Income

Design fees $739,000

Interest income (certificates of deposit) 2,700

Total income $741,700

Expenses

Salaries%u2014officers

Margaret Brown $190,000

Joel Lee 190,000 $380,000

Salaries%u2014clerical 61,000

Taxes

Property 26,810

Payroll 23,280

State income 3,140

Other miscellaneous 2,390 55,620

Repairs and maintenance 16,340

Meals and entertainment 9,800

Travel 5,600

Charitable contributions 1,200

Interest expense on business loans 31,100

Advertising 17,650

Rental expense 9,270

Depreciation 35,910

Contributions to pension plans 31,000

Employee benefit programs 21,170

Accounting service 13,790

Dues and subscriptions 5,100

Insurance 17,750

Legal and professional services 11,000

Miscellaneous 4,360

Telephone 3,160

Total expenses (730,820)

Net income before taxes $ 10,880

Federal income tax (5,192)

Net income per books $ 5,688

Designs Inc. Balance Sheet

Assets January 1, 2011 December 31, 2011

Cash $ 35,610 $ 42,580

Accounts receivable 45,100 43,300

Certificates of deposit 134,000 143,000

Depreciable assets 210,922 221,488

Accumulated depreciation (47,520) (83,430)

Land 42,000 42,000

Other assets 3,638 2,490

Total assets $ 423,750 $ 411,428

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Liabilities and Equity January 1, 2011 December 31, 2011

Accounts payable $ 26,550 $ 27,497

Other current liabilities 15,110 17,853

Mortgages 126,000 114,300

Capital stock 200,000 200,000

Retained earnings 56,090 51,778

Total liabilities and equity $ 423,750 $ 411,428

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