S CORPORATION TAX RETURN
Required:
• Using the information provided below, complete Salt Source Inc.’s (SSI) 2010
Form 1120S. Also complete Kim Bentley’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 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 Web site (www.irs.gov). The instructions can be helpful in completing the forms. Facts: Salt Source Inc. (SSI) was formed as a corporation on January 5, 2007, by its two owners Kim Bentley and James Owens. SSI immediately elected to be taxed as an S corporation for federal income tax purposes. SSI sells salt to retailers throughout the Rocky Mountain region. Kim owns 70 percent of the SSI common stock (the only class of stock outstanding) and James owns 30 percent. • SSI is located at 4200 West 400 North, Salt Lake City, UT 84116. • SSI’s Employer Identification Number is ***** • SSI’s business activity is wholesale sales. Its business activity code is 424990. • Both shareholders work as employees of the corporation. • Kim is the president of SSI (Social Security numberNNN-NN-NNNN. Kim’s address is 1842 East 8400 South, Sandy, UT 84094. • James is the vice president of SSI (Social Security numberNNN-NN-NNNN. James’s address is 2002 East 8145 South, Sandy, UT 84094. • SSI uses the accrual method of accounting and has a calendar year-end. C-18 The following is SSI’s 2010 income statement:
SSI
Income Statement
For year ending December 31, 2010
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 and entertainment (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:
1. SSI’s purchases during 2010 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 SSI.
2. 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.
3. SSI’s dividend income comes from publicly traded stocks that SSI has owned
for two years.
4. SSI’s compensation is as follows:
• Kim $120,000
• James $80,000
• Other $400,000.
5. SSI wrote off $6,000 in accounts receivable as uncollectible during the year.
6. SSI’s regular tax depreciation was $17,000. AMT depreciation was $13,000,
Appendix C
C-19
7. SSI distributed $60,000 to its shareholders.
8. SSI is not required to compute the amount in its accumulated adjustments
account.
The following are SSI’s book balance sheets as of January 1, 2010, and December 31,
2010.
2010
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
