Corporation (FORM 1120)
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Problem 3---C Corporation (FORM 1120)
On November 1, 2005, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies.
Pertinent information regarding Pet Kingdom is summarize
...
d as follows:
Pet Kingdom’s business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is
(214) 555-2211; and its e-mail address is [email protected].
The employer identification number is 11-1111111, and the principal business activity code is 453910.
Janet and Kim each own 50% of the common stock; Janet is president and Kim is vice president of the
company. No other class of stock is authorized.
Both Janet and Kim are full-time employees of Pet Kingdom. Janet’s Social Security number is 123-456789, and Kim’s Social Security number is 987-65-4321.
Pet Kingdom is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and
the lower of cost or market method. Pet Kingdom uses the straight-line method of depreciation for book
purposes and accelerated depreciation (MACRS) for tax purposes.
During 2014, the corporation distributed cash dividends of $250,000.
Pet Kingdom’s financial statements for 2014 are shown below. Income Statement
Income
Gross Sales
Sales returns and allowances
Net Sales
Cost of goods sold
Gross Profit
Dividends received from stock
Investments in less-than-20%owned U.S. corporations
Interest Income:
State bonds
Certificates of deposit
Total income
Expenses
Salaries-officers
Janet Morton
Kim Wong
Salaries-clerical and sales
Taxes (state, local, and payroll)
Repairs and maintenance
Interest Expense:
Loan to purchase state bonds
Other business loans
Advertising
Rental expense $5,750,000
(200,000)
$5,550,000
(2,300,000)
$3,250,000
43,750 $15,000
20,000 $262,500
262,500 $ 9,000
207,000 35,000
$3,328,750 $525,000
725,000
238,000
140,000
216,000
58,000
109,000 Depreciation*
106,000
Charitable contributions
38,000
Employee benefit programs
60,000
Premiums on term life
40,000
insurance policies on lives of
Janet Morton and Kim Wong;
Pet Kingdom is the designated
beneficiary
Total expenses
(2,255,000)
Net Income before taxes
$1,073,750
Federal income tax
(356,023)
Net income per books
$717,727
*Depreciation for tax purposes is $136,000. You are not provided enough detailed data to complete a
Form 4562 (depreciation). If you solve this problem using H&R Block Tax Software, enter the amount
of depreciation on line 20 of Form 1120. Balance Sheet
Assets
Cash
Trade notes and accounts
receivable
Inventories
Stock Investment
State bonds
Certificates of deposit January 1, 2014
$ 1,200,000
2,062,500 December 31, 2014
$ 1,037,750
2,147,000 2,750,000
1,125,000
375,000
400,000 3,030,000
1,125,000
375,000
400,000 Prepaid Federal Tax
Buildings and other depreciable
assets
Accumulated depreciation
Land
Other assets
Total assets
Liabilities and Equity
Accounts Payable
Other current liabilities
Mortgages
Capital stock
Retained earnings
Total liabilities and equity -05,455,000 3,977
5,455,000 (606,000)
812,500
140,000
$13,714,000
January 1,2014
$ 2,284,000
175,000
4,625,000
2,500,000
4,130,000
$ 13,714,000 (712,000)
812,500
128,500
$13,802,727
December 31, 2014
$ 1,975,000
155,000
4,575,000
2,500,000
4,597,727
$ 13,802,727 During 2014, Pet Kingdom made estimated tax payments of $90,000 each quarter to the IRS. Prepare a
Form 1120 for Pet Kingdom for tax year 2014. Suggested software: H&R BLOCK Tax Software.
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