Sam Smith (446-46-4646) and Jane Jones (312-12-1212) own and operate The Bike Shop, Inc. The corporation was formed on May 1, 1993. Sam is the president and owns 70 percent of the stock while Jane is the secretary-treasurer and owns the remaining 30 percent. Both are full-time employees. Sam received a salary of $150,000 and Jane received a salary of $60,000. Other pertinent information is given below:

► The corporation is an accrual-method, calendar-year taxpayer.

► Inventories are determined using the lower of cost or market method.

► The corporate headquarters are located at 1234 Wheeling Road. Cincinnati. OH 45202.

► The employer identification number is 75-4476243.

A tentative income statement and balance sheet for the corporation are given below.

The company provided the following additional information.

► The corporation distributed a cash dividend of $60,000 during the year.

► Tax depreciation for the year was $50,000.

► Meals and entertainment includes the corporation’s expense for a suite at Paul Brown Stadium, home of professional football’s Cincinnati Bengals. The cost of the suite was $10,000, which includes event tickets of $4,000.

► The corporation’s estimated bad debt expense for the year was $5,000. Actual bad debts were $ 1,000.

► Life insurance premiums were paid on term policies covering the lives of the two owners. The corporation is the beneficiary.

► Dividends received were from stock investment in less than 20 percent owned U.S. corporations.

► The company look a physical count of its inventory on the last day of the year. On that date, it was determined that ending inventory was $360,000. This is not reflected in the financial statements above.

► Each of the four $.17,500 timely made estimated tax payments were recorded as Federal income taxes paid.

Prepare Form 1120 for the corporation.

 
 

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Assets Cash Accounts receivable Allowance for doubtful accounts U.S. Treasury bonds Stocks Inventory Equipment Land Building Accumulated depreciation Liabilities and Equity Accounts payable Notes payable Capital stock Retained earnings January 1, 2009 $ 110,000 14,000 (2,000) 20,000 50,000 375,000 295,000 164,000 500,000 (211,000) $1,315,000 65,000 500,000 150,000 600,000 $1,315,000 December 31, 2010 S 691,000 31,000 (6,000) 20,000 70,000 375,000 405,000 164,000 500,000 (251,000) $1,999,000 350,000 400,000 150,000 1,099,000 $1,999,000 Assets Cash Accounts receivable Allowance for doubtful accounts U.S. Treasury bonds Stocks Inventory Equipment Land Building Accumulated depreciation Liabilities and Equity Accounts payable Notes payable Capital stock Retained earnings January 1, 2009 $ 110,000 14,000 (2,000) 20,000 50,000 375,000 295,000 164,000 500,000 (211,000) $1,315,000 65,000 500,000 150,000 600,000 $1,315,000 December 31, 2010 S 691,000 31,000 (6,000) 20,000 70,000 375,000 405,000 164,000 500,000 (251,000) $1,999,000 350,000 400,000 150,000 1,099,000 $1,999,000

Answer rating: 100% (QA)

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