Summer Fun, Inc. Federal Tax Return

FACTS

Summer Fun, Inc. is owned by Mary Sun and her husband, James Sun. The corporation manufactures large beach umbrellas (business activity code number 339900). The corporation has reported positive financial and taxable incomes since inception.

The company is located at 100 Summer Way, Boca Raton, Florida 33431. The company’s employer identification number is 98-7654321, and corporation uses a calendar year for tax purposes. The date of incorporation was February 9, 2010.

Mary Sun (social security number 123-45-6789) is an 81 percent shareholder and president of the company. James Sun (social security number 111-11-1111) is a 19 percent shareholder and vice president of the company. Both persons devote 100 percent of their time to the corporation. Mary’s compensation is $187,154 per year, and James’s compensation is $60,899 per year.

The corporation is not a personal holding company. While the corporation is a ‘closely-held C corporation,’ it does not engage in activities to which the at-risk or passive activity loss limitations apply.

The corporation files its tax return on the accrual method. Inventory has been consistently valued at Cost under the FIFO method using the full absorption procedure. Inventory capitalization rules of Internal Revenue Code Section 263A do not apply due to the ‘small business exception’ (average annual gross receipts for the three preceding taxable years do not exceed $25 million). Further, the business interest deduction does not apply either as the corporation meets the small business exception for this rule as well. The accounting records are computerized.

ADDITIONAL INFORMATION

1. Summer Fun, made estimated tax payments attributable to 2018 of $30,111. The corporation also had a credit from an overpayment of its prior year Federal income taxes of

$3,889 that it elected to apply against its 2018 tax liability.  Apply any overpayment to 2019.

2. Ignore state income

3. Dividend income is from the following sources:

Big Time Fun (Summer Fun owns 75% of all outstanding stock)………….. IBM Corp.(owns 12% of all outstanding stock)  ……………………………….. Voltage, Inc. (owns 25% of all outstanding)  …………………………….. Total …………………………………………………………………………………………

$  7,578

3,120

17,001

$27,699

4. An analysis of the Allowance for Doubtful Accounts reveals:

Balance, 01/01/18 …………………………………………………………………………………………  $38,111

2018 Transactions–

Provision for bad debts …………………………………………………………………….

Recoveries of bad debts ……………………………………………………………………

Accounts written off as uncollectible ………………………………………………… Balance, 12/31/18 ………………………………………………………………………

4,554

-0-

 (2,877)

  $39,788

5. Goodwill of $28,425 arose on purchase of another business on 01/31/16. Amortization is not being taken for financial

6. Assume that deductions for tax depreciation (i.e., Modified Accelerated Cost Recovery) for the year total $120,787. For this practice set do not complete Form 4562 (Depreciation and Amortization).

7. $94,530 of the Accrued Wages as of 12/31/17 were paid by 3/15/18. $92,547 of the Accrued Wages as of 12/31/18 were paid by 3/15/19. The M-1 should be adjusted through the Wage

8. Contributions included:

All contributions were paid in cash during the year except for the Food Bank contribution which was pledged by the corporation (i.e., approved by the Board of Directors) on December 2 7, 2018 and paid on March 4, 2019.

In addition to the cash contributions above Summer Fun, Inc. donated inventory to a local charity.  The fair market value of the inventory was 1,500 and the cost basis was 400.

9. Included in interest income is $1,050 from State of Florida General Obligation Bonds held throughout the current These bonds are included in the marketable securities account.

10. On 05/07/18 the corporation sold 2,580 shares of Voltage, common stock for $10,877. The stock had been purchased on 04/30/13 for $12,965.

11.    Disregard any penalty on underpayment of estimated tax.

12. Meals expense related to various employee and owner lunches where they discussed various aspects of the

REQUIRED

From the above information, prepare Summer Fun, Inc.’s 2018 Federal income tax return (Form 1120), including all needed supporting statements, schedules, and forms. Unless otherwise noted, assume Summer Fun, Inc. follows the policies of making all elections to minimize its current income taxes and, to the extent possible, of conforming procedures for financial and tax accounting. Round amounts to the nearest dollar. If additional information is needed, make realistic assumptions and fill in all required data. The forms that you will need to complete include Forms 1120, 1125-A, 1125-E, Schedule D and Schedule G. These forms can be found at  http://apps.irs.gov/app/picklist/list/formsPublications.html. You are required to use the 2017 tax forms as 2018 are not available yet. However, you are required to use the 2018 income tax rates, rules, limits and other laws pertaining to this case. If you have any question, refer to your textbook for the 2018 laws. You will complete these forms in the PDF format. Just type or neatly write in the amounts on the various lines and then print those forms off when complete. Upload all forms to Blackboard. Instructions to the Forms can be very beneficial in the preparation of the tax forms.