S CORPORATION TAX RETURN PROBLEM – USING 2013 FORMS

S CORPORATION TAX RETURN PROBLEMRequired:• Using the information provided below, complete Salt Source Inc.’s (SSI) 2013Form 1120S. Also complete Kim Bentley’s Schedule K-1.• Form 4562 for depreciation is not required. Include the amount of taxdepreciation given in the problem on the appropriate line on the first page ofForm 1120S.• If any information is missing, use reasonable assumptions to fill inthe 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 twoowners Kim Bentley and James Owens. SSI immediately elected to be taxed as anS corporation for federal income tax purposes. SSI sells salt to retailers throughoutthe Rocky Mountain region. Kim owns 70 percent of the SSI common stock (theonly 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 XXXXX• 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’saddress 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.12/31/13 12/31/12Liabilities and CapitalAccounts payable $ 49,000 $ 45,500Notes payable 50,000 0Mortgage payable 63,000 67,500Capital: XXXXX XXXXX 94,553 82,040Steve Stillwell 217,542 176,679TOTALS $474,095 $371,719C-18The following is SSI’s 2013 income statement:SSIIncome StatementFor year ending December 31, 2013Revenue from sales $980,000Sales returns and allowances (10,000)Cost of goods sold (110,000)Gross profit from operations$860,000Other income:Dividend income $ 15,000Interest income 5,000Gross income $880,000Expenses: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 $ 109,000Notes:1. SSI’s purchases during 2013 were $115,000. It values its inventory based on costusing the FIFO inventory cost flow method. Assume the rules of §263A do notapply to SSI.2. Of the $5,000 interest income, $2,000 was from a West Jordan city bond used tofund public activities (issued in 2007) and $3,000 was from a money marketaccount.3. SSI’s dividend income comes from publicly traded stocks that SSI has ownedfor 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 CC-197. SSI distributed $60,000 to its shareholders.8. SSI is not required to compute the amount in its accumulated adjustmentsaccount.The following are SSI’s book balance sheets as of January 1, 2010, and December 31,2010.2010January 1 December 31AssetsCash $ 90,000 $143,000Accounts receivable 300,000 310,000Allowance for doubtful accounts (60,000) (68,000)Inventory 45,000 50,000State and local bonds 38,000 38,000Investments in stock 82,000 82,000Fixed assets 100,000 100,000Accumulated depreciation (20,000) (30,000)Other assets 20,000 21,000Total assets $595,000 $646,000Liabilities and Shareholders’ EquityAccounts payable 60,000 55,000Other current liabilities 5,000 8,000Other liabilities 10,000 14,000Capital stock 200,000 200,000Retained earnings 320,000 369,000Total liabilities and shareholders’ equity $595,000 $646,000