Tax Accounting

Anonymous
timer Asked: Mar 1st, 2018
account_balance_wallet $30

Question description

Davy Jones provides the following information for Davy Jones’ Nautical Tours, Inc, a C corporation which he operates with his business partner, William Turner.

You’re required to prepare a Form 1120 U.S. Corporation Income Tax Return, an 1120 Statement 1 – Other Deductions, and an 1120 Schedule G – Information on Certain Persons Owning Stock

Davy Jones’ Nautical Tours, Inc, is operated by David K. Jones (SSN 000-00-0000) and William W. Turner (SSN 111-11-1111). They are each 50% common shareholders in the business.

Principal Business or Professional Activity Code; 114110
Principal business; Charter fishing tours
Employer Identification Number 867530950

Business address
1008 North Harbor Drive
San Diego, CA 92103


Home address (David K. Jones)
8700 Lake Murray Blvd #2
San Diego, 92119

  • The cash accounting method and GAAP are utilized
  • The business was incorporated on January 1st, 2012
  • Wages consist of $25,000 paid to one employee and $15,000 to another
  • Officer’s Compensation; $42,000 payments to each officer, Jones and Turner.
  • None of this compensation is claimed on Form 1125-A (Cost of Goods Sold).
  • There is no preferred stock
  • Depreciation expense; The Jolly Roger was purchased for $850,000. The depreciation on the income statement is book depreciation and will differ from what is actually used on Line 20 Depreciation of form 1120. The boat is depreciated using the Modified Accelerated Cost Recovery System (MACRS), half year convention, is in its 4th year of service and the 10-year recovery period is used. Utilize Publication 946 How to Depreciate Property to calculate the correct depreciation amount to enter on the 1120 Line 20 (Form 4562 is not required). Locate Table A1 in the Appendix to calculate the tax-deductible depreciation.
  • Interest expense is interest paid on the loan for the boat; the boat loan is considered nonrecourse
  • Insurance payments were made to cover liability for guests and for the boat
  • Payroll taxes; FICA and FUTA payments made on behalf of employees and corporate officers
  • Travel was purely for business purposes
  • Parking fines are tickets Jones received for parking illegally
  • Lease expense was paid to Honda Motors for his mother’s car lease, who is not involved in the business in any way
  • Estimated payments; The Corporation made four quarterly estimated tax payments of $1,000

They’d like any overpayment refunded to them.



Davy Jones’ Nautical Tours, Inc. 2016 Income Statement



Revenue

$400,950.00

Wages

($40,000.00)

Officer's Compensation

($84,000.00)

FICA

($9,486.00)

FUTA

($169.00)

Depreciation

($85,000.00)

Interest

($43,900.00)

Advertising

($6,350.00)

Supplies

($23,795.00)

Legal fees

($6,940.00)

Insurance

($26,700.00)

Boat slip rental

($33,010.00)

Travel

($6,250.00)

Office expense

($7,940.00)

Parking fines

($1,350.00)

Lease expense

($3,650.00)

Net Profit

$22,410.00


Davy Jones' Nautical Tour, Inc 2016 Balance Sheet



1/1/2016

12/31/2016

Cash

$15,500.00

$15,500.00

Boat

$850,000.00

$850,000.00

Accumulated Depreciation

($255,000.00)

($340,000.00)

Total Assets

$610,500.00

$525,500.00

Loans

$525,000.00

$417,590.00

Equity Investment

$50,000.00

$50,000.00

Retained Earnings

$35,500.00

$57,910.00

Total Equity + Liability

$610,500.00

$525,500.00


Assignment Guidelines

To prepare the Corporation’s tax return, complete the following steps:
  1. Ensure that you have Adobe Reader installed on your computer to open and use the downloadable IRS forms.
  2. Go to the IRS Web site and download the fill-in tax forms that you will need to complete.
  3. Complete all necessary downloaded fill-in forms on the computer and save.
  4. Save the completed forms as PDFs and upload for grading.
  5. You may not utilize Tax preparation software to complete this assignment! This constitutes cheating!
  6. Save the completed forms as PDFs and upload for grading; double check your PDFs to ensure data was retained when they were uploaded to Submitted Assignments; blank forms will yield 0 points!
You will be required to fill out and submit the following forms:

Other Information

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Tutor Answer

wambuiguama
School: UCLA

Hello! I have uploaded the answer
to this question. Please have a look at it and get back to me in case of
anything. I searched for the third form in the IRS website but I could not find it. So I have just added the other deduction manually and incorporated in the US corporation Income return form.

Information on Certain Persons Owning the
Corporation’s Voting Stock

SCHEDULE G
(Form 1120)
(Rev. December 2011)
Department of the Treasury
Internal Revenue Service

OMB No. 1545-0123

▶ Attach

to Form 1120.
▶ See instructions on page 2.

Employer identification number (EIN)

Name

867530950

Davy Jones’ Nautical Tours, Inc

Part I

Certain Entities Owning the Corporation’s Voting Stock. (Form 1120, Schedule K, Question 4a). Complete
columns (i) through (v) below for any foreign or domestic corporation, partnership (including any entity treated
as a partnership), trust, or tax-exempt organization that owns directly 20% or more, or owns, directly or
indirectly, 50% or more of the total voting power of all classes of the corporation’s stock entitled to vote (see
instructions).
(i) Name of Entity

Part II

(ii) Employer Identification
Number (if any)

(iii) Type of Entity

(iv) Country of Organization

(v) Percentage Owned in Voting Stock

Certain Individuals and Estates Owning the Corporation’s Voting Stock. (Form 1120, Schedule K,
Question 4b). Complete columns (i) through (iv) below for any individual or estate that owns directly 20% or
more, or owns, directly or indirectly, 50% or more of the total voting power of all classes of the corporation’s
stock entitled to vote (see instructions).
(i) Name of Individual or Estate

(ii) Identifying Number
(if any)

(iii) Country of
Citizenship (see
instructions)

(iv) Percentage Owned
in Voting Stock

William W. Turner

111-11-1111

United States

50%

David K. Jones

000-00-0000

United States

50%

For Paperwork Reduction Act Notice,
see the Instructions for Form 1120.

Cat. No. 52684S

Schedule G (Form 1120) (Rev. 12-2011)

Page 2

Schedule G (Form 1120) (Rev. 12-2011)

General Instructions
Purpose of Form
Use Schedule G (Form 1120) to provide
information applicable to certain entities,
individuals, and estates that own, directly,
20% or more, or own, directly or indirectly,
50% or more of the total voting power of all
classes of the corporation’s stock entitled
to vote.

Who Must File
Every corporation that answers “Yes” to
Form 1120, Schedule K, Questions 4a or
4b, must file Schedule G to provide the
additional information requested for certain
entities, individuals, and estates owning the
corporation’s voting stock.

Constructive Ownership of
the Corporation
For purposes of Schedule G (Form 1120),
the constructive ownership rules of section
267(c) (excluding section 267(c)(3)) apply to
ownership of interests in corporate stock
and ownership of interests in the profit,
loss, or capital of a partnership. An interest
in the corporation owned directly or
indirectly by or for another entity
(corporation, partnership, estate, or trust) is
considered to be owned proportionately by
the owners (shareholders, partners, or
beneficiaries) of the owning entity. Also,
under section 267(c), an individual is
considered to own an interest owned
directly or indirectly by or for his or her
family. The family of an individual includes
only that individual’s spouse, brothers,
sisters, ancestors, and lineal descendants.
An interest will be attributed from an
individual under the family attribution rules
only if the person to whom the interest is
attributed owns a direct or an indirect
interest in the corporation under section
267(c)(1) or (5). However, for purposes of
these instructions, an individual will not be
considered to own, under section 267(c)(2),
an interest in the corporation owned,
directly or indirectly, by a family member
unless the individual also owns an interest
in the corporation either directly or
indirectly through a corporation,
partnership or trust.

Example 1. Corporation A owns,
directly, a 50% interest in the profit, loss,
or capital of Partnership B. Corporation A
also owns, directly, a 15% interest in the
profit, loss, or capital of Partnership C and
owns, directly, 15% of the voting stock of
Corporation D. Partnership B owns,
directly, a 70% interest in the profit, loss,
or capital of Partnership C and owns,
directly, 70% of the voting stock of
Corporation D. Corporation A owns,
indirectly, through Partnership B, a 35%
interest (50% of 70%) in the profit, loss, or
capital of Partnership C and owns,
indirectly, 35% of the voting stock of
Corporation D. Corporation A owns,
directly or indirectly, a 50% interest in the
profit, loss, or capital of Partnership C
(15% directly and 35% indirectly), and
owns, directly or indirectly, 50% of the
voting stock of Corporation D (15% directly
and 35% indirectly).
Corporation D reports in Part I that its
voting stock is owned, directly or indirectly,
50% by Corporation A and is owned,
directly, 70% by Partnership B.
Example 2. A owns, directly, 50% of the
voting stock of Corporation X. B, the
daughter of A, does not own, directly, any
interest in Corporation X and does not
own, indirectly, any interest in Corporation
X through any entity (corporation,
partnership, trust, or estate). Therefore, the
family attribution rules do not apply and,
for the purposes of Part II, the 50% interest
of A in Corporation X is not attributed to B.
Example 3. A owns, directly, 50% of the
voting stock of Corporation X. B, the
daughter of A, does not own, directly, any
interest in X but does own, indirectly, 10%
of the voting stock of Corporation X
through Trust T of which she is the sole
beneficiary. No other family member of A or
B owns, directly, an...

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