S Corporation Tax Return Problem

Required:

Using the information provided below, complete First Place Inc.$$s $($FPI$)2019$ Form $1120$S$.$ Also complete Kate Kleiber$$s Schedule K$-1.$

Form $4562$ for depreciation is not required. Include the amount of tax depreciation given in the problem on the appropriate line on the first page of Form $1120$S$.$

If any information is missing, use reasonable assumptions to fill in the gaps.

The forms, schedules, and instructions can be found at the IRS website $($www$.$irs.gov$).$ The instructions can be helpful in completing the forms.

Facts:

First Place Inc. $($FPI$)$ was formed as a corporation on January $5,2016,$ by its two owners Kate Kleiber and James Chandler. FPI immediately elected to be taxed as an S corporation for federal income tax purposes. FPI sells mountain climbing gear to retailers throughout the Rocky Mountain region. Kate owns $70$ percent of the FPI common stock $($the only class of stock outstanding$)$ and James owns $30$ percent.

FPI is located at $4200$ West $400$ North, Salt Lake City, Utah $84116.$

FPI$$s Employer Identification Number is $87-5467544.$

FPI$$s business activity is wholesale sales. Its business activity code is $423910.$

Both shareholders work as employees of the corporation.

Kate is the president of FPI $($Social Security number $312-89-4567).$ Kate$$s address is $1842$ East $8400$ South, Sandy, Utah $84094.$

James is the vice president of FPI $($Social Security number $321-98-7645).$ James$$s address is $2002$ East $8145$ South, Sandy, Utah $84094.$

FPI uses the accrual method of accounting and has a calendar year$-$end.

The following is FPI$$s $2019$ income statement:

FPI Income Statement

For year ending December $31,2019$

Revenue from sales

$ $980,000$

Sales returns and allowances

$(10,000)$

Cost of goods sold

$(110,000)$

Gross profit from operations

$ $860,000$

Other income:

Dividend income

$ $15,000$

Interest income

$5,000$

Gross income

$ $880,000$

Expenses:

Compensation

$$(600,000)$

Depreciation

$(10,000)$

Bad debt expense

$(14,000)$

Meals

$(2,000)$

Maintenance

$(8,000)$

Business interest

$(1,000)$

Property taxes

$(7,000)$

Charitable contributions

$(10,000)$

Other taxes

$(30,000)$

Rent

$(28,000)$

Advertising

$(14,000)$

Professional services

$(11,000)$

Employee benefits

$(12,000)$

Supplies

$(3,000)$

Other expenses

$(21,000)$

Total expenses

$(771,000)$

Net income

$ $109,000$

Notes:

FPI$$s purchases during $2019$ were $$115,000.$ It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of $263$A do not apply to FPI.

Of the $$5,000$ interest income, $$2,000$ was from a West Jordan city bond used to fund public activities $($issued in $2007)$ and $$3,000$ was from a money market account.

FPI$$s dividend income comes from publicly traded stocks that FPI has owned for two years.

FPI$$s compensation is as follows:

Kate, $$120,000$

James, $$80,000$

Other, $$400,000.$

FPI wrote off $$6,000$ in accounts receivable as uncollectible during the year.

FPI$$s regular tax depreciation was $$17,000.$ AMT depreciation was $$13,000.$

FPI distributed $$60,000$ to its shareholders.

FPI is not required to compute the amount in its accumulated adjustments account.

The following are FPI$$s book balance sheets as of January $1,2019,$ and December $31,2019.$

$2019$

January $1$

December $31$

Assets

Cash

$ $90,000$

$$143,000$

Accounts receivable

$300,000$

$310,000$

Allowance for doubtful accounts

$(60,000)$

$(68,000)$

Inventory

$45,000$

$50,000$

State and local bonds

$38,000$

$38,000$

Investments in stock

$82,000$

$82,000$

Fixed assets

$100,000$

$100,000$

Accumulated depreciation

$(20,000)$

$(30,000)$

Other assets

$20,000$

$21,000$

Total assets

$ $595,000$

$ $646,000$

Liabilities and Shareholders$$ Equity

Accounts payable

$ $60,000$

$ $55,000$

Other current liabilities

$5,000$

$8,000$

Other liabilities

$10,000$

$14,000$

Capital stock

$200,000$

$200,000$

Retained earnings

$320,000$

$369,000$

Total liabilities and shareholders$$ equity

$$595,000$

$$646,000$