Bottle-Up, Inc., was organized on January 8, 2007, and made its S election on January 24, 2007. The necessary consents to the election were filed in a timely manner. Its address is 1234 Hill Street, City, ST 33333. Bottle-Up uses the calendar year as its tax year, the accrual method of accounting, and the first-in, first-out (FIFO) inventory method. Bottle-Up manufactures ornamental glass bottles. It made no changes to its inventory costing methods this year. It uses the specific identification method for bad debts for book and tax purposes. Herman Hiebert and Melvin Jones own 500 shares each. Both individuals materially participate in Bottle-Up?s single activity. Herman Hiebert is the tax matters person. Financial statements for Bottle-Up for the current year are shown in Tables C:11-2 through C:11-4. Assume that Bottle-Up?s business qualifies as a U.S. production activity and that its qualified production activities income is $90,000. The S corporation uses the small business simplified overall method for reporting these activities (see discussion for Line 12d of Schedules K and K-1 in the Form 1120S instructions). Prepare a 2016 S corporation tax return for Bottle-Up, showing yourself as the paid preparer.

Table C:11-2

Bottle-up, inc. income statement for the Year ended December 31 of the Current Year

Table C:11-3

Bottle-up, inc. Balance sheet for January 1 and December 31 of the Current Year

Table C:11-4

Bottle-up, inc. statement of Change in retained earnings, for the Current Year ended December 31

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Sales $2,500,000 (15,000) Returns and allowances Net sales $2,485,000 Beginning inventory Purchases $ 102,000 900,000 Labor Supplies Utilities Other manufacturing costs 200,000 80,000 100,000 188,000 $1,570,000 (96,000) Goods available for sale Ending inventory 1,474,000b Gross profit Salaries Utilities expense Depreciation (MACRS depreciation is $36,311) Automobile and truck expense Office supplies expense Advertising expense Bad debts expense Rent expense Interest expensed Meals and entertainment expense Selling expenses Repairs and maintenance expense Accounting and legal expense Charitable contributions Insurance expense Hourly employees' fringe benefits Payroll taxes Other taxes Penalties (fines for overweight trucks) Operating profit Other income and losses: Long-term gain on sale of capital assets Sec. 1231 loss $1,011,000 $ 451,020 54,000 11,782 26,000 9,602 105,000 620 30,000 1,500 21,000 100,000 38,000 4,500 9,000 24,500 11,000 36,980 2,500 1,000 (938,004) 72,996 $ 48,6669 (1,100)h Interest on U.S. Treasury bills Interest on State of Florida bonds Dividends from domestic corporations Investment expenses 1,200 600 11,600 (600) 60,366 Net income $ 133,362