On November 1, 2010, Janet Morton and Kim Wong began doing business and incorporated Critter World, Inc., in the State o

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On November 1 2010 Janet Morton And Kim Wong Began Doing Business And Incorporated Critter World Inc In The State O 1 (243.19 KiB) Viewed 11 times

On November 1, 2010, Janet Morton and Kim Wong began doing business and incorporated Critter World, Inc., in the State of Texas to sell pet animals and pet supplies. Pertinent information regarding Critter World is summarized as follows. • Critter World'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 11-1111112, and the principal business activity code is 453910. The business activity and products are pet supplies. 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 or issued. Janet and Kim are on the Board of Directors. • Critter World does have an annual audit of it financial statements. Its auditor is the firm of Andersen and Young CPAS, LLP. Critter World's stock is not publicly traded. Critter World has never had to restate its financial statements. ● Both Janet and Kim are full-time employees of Critter World. Janet's Social Security number is 123-45-6788, and Kim's Social Security number is 123-45-6787. Janet's home address is 1012 Northwest Parkway, Dallas, TX 75225. Kim's home address is 1014 Northwest Parkway, Dallas, TX 75225. Critter World is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. • During 2021, the Critter World distributed cash dividends of $400,000. During 2021, Critter World made estimated tax payments of $42,000 each quarter on the due date of each quarterly payment to the IRS. Critter World has no foreign operations and no foreign source income. Critter World owns no interest in any other corporation, partnership, liability company, trust, etc. Critter World's financial statements for 2021 are shown below: ASSETS Cash Trade notes and accounts Receivables Inventories Stock investments State/municipal bonds Certificates of deposit Prepaid federal tax Buildings and other depreciable assets Accumulated depreciation Land Other assets Total Assets LIABILITIES AND EQUITIES Accounts Payable Other current liabilities Mortgages Capital stock Retained earnings Total Liabilities & Capital Balance Sheet Beginning $1,350,000 2,070,500 2,750,000 1,125,000 375,000 400,000 0 5,455,000 (606,000) 812,500 140,000 $13,872,000 $2,482,000 175,000 4,625,000 2,500,000 4,090,000 $13,872,000 Ending $990,000 1,910,000 3,030,000 1,125,000 375,000 400,000 10,000 5,730,000 (789,000) 812,500 128,500 $13,722,000 $2,096,860 255,000 4,575,000 2,500,000 4,295,140 $13,722,000
Revenue Gross sales Sales returns and allowances Net sales Cost of goods sold Gross Profit Total Income Dividends - Received from stock investments in less than 20% owned U.S. Corporations Interest income - state/municipal bonds Interest income - certificates of deposit Expenses Salaries - clerical and sales Salaries - officers: Janet Morton Kim Wong Taxes - state, local and payroll Income Statement Repairs and maintenance: Meals Business Entertainment Interest expense: Loan to purchase state/municipal bonds Other business loans Advertising Rental expense Depreciation Charitable contributions - cash Employee benefit programs Premiums on term life insurance - policies on lives of Janet Morton and Kim Wong, Per Financial Statements $5,620,000 ($220,000) 5,400,000 (2,100,000) 3,300,000 38,000 12,000 20,000 3,370,000 875,000 230,000 230,000 238,000 140,000 120,000 80,000 9,000 207,000 58,000 109,000 183,000 25,000 60,000 Critter World is the designated beneficiary Total Expenses Net income before Federal income tax Federal income tax expense Net Income per Financial Statements ● 40,000 2,604,000 766,000 (160,860) $605,140 Critter World uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes. For the tax year ended December 31, 2021, Critter World purchased and placed-in-service the following capital additions: Computers - new (March 17, 2021) Office Equipment - new (May 1, 2021) Office Furniture - new (August 15, 2021) $80,000 $130,000 $65,000 For income tax purposes, Critter World's policy is to maximize its tax depreciation. Thus, it will claim MACRS, Bonus and Sec. 179 depreciation when available. Consequently, Critter World has claimed either bonus or Sec. 179 depreciation on all its assets placed- in-service prior to January 1, 2021. Thus, these assets are fully depreciated for income tax purposes as of December 31, 2020. The detail of Critter World's rent expense of $109,000 is as follows: o Building - $65,400 o Equipment, furniture, and computers - $43,600 Critter World's charitable contributions were all made in cash to qualifying Sec. 501(c)(3) charitable organizations. Assignment 1. Prepare the following tax return forms, schedules and supporting schedules and attachments where requested, for Critter World for the year ended December 31, 2021: a. Book-to-Tax Reconciliation (Excel worksheet attached) b. Form 1120, U.S. Corporation Income Tax Return (pages 1-6) c. Form 1125-A, Cost of Goods Sold