S Corporation Tax Return Problem

Required:

Using the information provided below, complete First Place Inc.s (FPI) 2021 Form 1120S. Also complete Kate Kleibers Schedule K-1 and the forms 1125-A and 1125-E.

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 1120S.

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, 2017, 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, and both devote 100% of their working time to FPI.

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

FPIs Employer Identification Number is 87-5467544.

FPIs 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). Kates address is 1842 East 8400 South, Sandy, Utah 84094.

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

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

Notes:

FPIs purchases during 2021 were $115,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of 263A do not apply to FPI, and that the company did not make any changes in the way it measures or tracks inventory during 2021.

Of the $5,000 interest income, $2,000 was from a West Jordan city bond used to fund public activities (issued in 2017) and $3,000 was from a money market account.

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

FPIs 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.

FPIs total MACRS depreciation for 2021 is $17,000.

FPI made a $10,000 cash donation to the American Red Cross in 2021.

FPIs beginning balance of its Accumulated Adjustments Account (AAA) was $320,000.

FPI distributed $60,000 to its shareholders.

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