Debbie Rader, William Allen, and Jeffrey Townsend are owners in “RAT, Inc.” – a
ID: 2401049 • Letter: D
Question
Debbie Rader, William Allen, and Jeffrey Townsend are owners in “RAT, Inc.” – a “C” Corporation engaged in pest control services. Pertinent information regarding RAT, Inc. is summarized below.
Social security numbers are as follows; Debbie – 623-98-0123; William – 410-63-4297; Jeffrey – 855-21-1750. Debbie is the President of the company.
The address of the company is 1421 Ocean View Drive, Anderson, ME 04842.
The company was formed and began operations on January 1, 2013.
The business code is 541990.
The federal identification number is 67-4598288
The corporation uses the cash method of accounting and the calendar year for reporting.
The corporation recorded $14,002 depreciation for book purposes but $21,602 for income tax purposes (using MACRS methodology). Assume none of the depreciation creates a tax preference or adjustment for AMT purposes.
All loan borrowings were used exclusively for acquisition of equipment, consequently, all interest is considered business interest.
The owners original capital contributions are as follows: Rader - $100,000 for 50% ownership; Allen - $60,000 for 30% ownership; and Townsend $40,000 for a 20% ownership in the stock of the business. No capital contributions occurred in 2017.
Salary payments were made to the owners as follows: Rader - $90,000, Allen and Townsend - $30,000 EACH.
Each of the owners were paid a dividend as follows: Rader - $60,000; Allen - $36,000; Townsend - $24,000. There were no distributions of any non-cash property.
The equipment loan is nonrecourse debt to the shareholders. .
None of the stockholders sold any portion of their ownership interests during the year.
The company has no available tax credits and is not subject to AMT. The company’s operations are entirely restricted to the local geographic area in Maine. All shareholders are U.S. citizens. The company had no foreign operations, no foreign bank accounts, and no interest in any foreign trusts or foreign corporations. The company’s stock is not publicly traded.
The company is not subject to the consolidated audit procedures. The company files its federal tax return in Cincinnati, Ohio.
Debbie Rader lives at 415 Knight Ct., Anderson, ME 04842, William Allen lives at 692 Radford Dr., Anderson, ME 04842; and Jeffrey Townsend lives at 342 Coastal Rd., Anderson, ME 04842.
No ownership changes occurred during the year.
The company’s marketable securities represent small investments (<1%) in a number of publicly traded companies and mutual funds. It sold its holdings ofXYZ common stock (carried as Marketable Securities on the balance sheet) on July 20 for $15,000. The corporation purchased this investment several years ago for $25,000.
The current income statement for the corporation reflected book net income of $98,100 AFTER book depreciation has been taken on the equipment and the loss on the sale of XYZ common stock. The following information was taken from the partnership’s financial statements for the current year.
Cash Receipts:
Service fees collected $803,000
Taxable dividend income 6,600
Taxable business interest income 2,400
Tax exempt interest 1,600
Proceeds from sale of XYZ common stock $ 15,000
Total Receipts $828,600
Cash Disbursements:
Compensation (salary) to Owners $150,000
Customer Refunds 5.000
Office Rent 29,000
Federal income tax payments ($10K/quarter) 40,000
Utilities 7,498
Employee salaries 350,000
Business & Professional Licenses 3,000
Cash Contribution to Red Cross 1,000
Meals & Entertainment (100%) 2,200
Travel 6,000
Office supplies & expense 10,400
Accounting (Professional) fees 11,000
Advertising 18,000
Payroll taxes 48,600
Business interest (on equipment loan) 1,600
General Liability Insurance Expense 3,200
Principal payments on equipment loan 12,000
Dividend payments to owners 120,000
Equipment rental 5,000
Total Disbursements 823,498
The current income statement for the company reflects a book net income of been made to record regular depreciation in the amount of $14,002.
The balance sheets for the corporation were as follows for the current year:
Account January 1, 2017 December 31, 2017
Cash $ 95,761 $ ?
Tax-exempt securities (at cost) 32,000 32,000
Marketable Securities (at cost) 125,000 ?
Machinery & equipment 85,000 85,000
Accumulated depreciation ( 36,761) ________?
Total assets $ 301,000 $ ?
Nonrecourse equipment loan $ 35,000 $ ?
Common Stock $ 40,000 $ ?
Additional Paid-in Capital $ 160,000 $ ?
Retained Earnings $ 66,000 $ ?
Total liabilities and capital $ 301,000 $ ?
REQUIRED: 1. Prepare a 2017 Form 1120 for the corporation including Schedule D and Form 4562. (Do NOT prepare a state return). Prepare supporting schedules as necessary if adequate information is provided. (Hint: If you use a computerized software program, you may override the Form 4562 with asset and current and accumulated depreciation entries).
Explanation / Answer
1120 schedule D
Income
1 Gross receipts or sales
Cash disbursements
Subtract b) from a)
a)
b)
828600
823498
5102
Assets and labilities
Total assets
liabilities
Nonrecourse equipment loan
Additional Paid in capital
Total Liabilities
Capital = Assets -liabilities
301000
35000
160000
195000
106000
Capital gains
Capital contributions
Rader
Allen
Townsend
Total contributions
Salaries paid
Rader
Allen
Townsend
Total salaries paid
Dividends Paid
Rader
Allen
Townsend
Total dividends paid
Balance = a – (b + c)
a)
b)
c)
100000
60000
40000
200000
90000
30000
30000
150000
60000
36000
24000
120000
-70000
Long term Capital gains
Gains from stock
stock during investment years
common stock in books of account
increase in common stock
income
depreciation on common stock
income after depreciation
balance = a +b
a)
b)
25000
15000
10000
98100
14002
84098
94098
Form 4562
Property
Expenses
RAT Inc.
Rader ownership percentage
Allen
Townsend
Total disbursements
50%
30%
20%
823498
labilities
liabilities
Nonrecourse equipment loan
Additional Paid in capital
Total Liabilities
35000
160000
195000
Depreciation
Depreciation on common stock
14002
14002
MACRS Depreciation
Depreciation for taxation purposes
21602
14002
Salaries for owners
Salaries paid
Rader
Allen
Townsend
Total salaries paid
90000
30000
30000
150000
Dividends paid to owners
Dividends Paid
Rader
Allen
Townsend
Total dividends paid
60000
36000
24000
120000
Income
1 Gross receipts or sales
Cash disbursements
Subtract b) from a)
a)
b)
828600
823498
5102
Assets and labilities
Total assets
liabilities
Nonrecourse equipment loan
Additional Paid in capital
Total Liabilities
Capital = Assets -liabilities
301000
35000
160000
195000
106000
Capital gains
Capital contributions
Rader
Allen
Townsend
Total contributions
Salaries paid
Rader
Allen
Townsend
Total salaries paid
Dividends Paid
Rader
Allen
Townsend
Total dividends paid
Balance = a – (b + c)
a)
b)
c)
100000
60000
40000
200000
90000
30000
30000
150000
60000
36000
24000
120000
-70000
Long term Capital gains
Gains from stock
stock during investment years
common stock in books of account
increase in common stock
income
depreciation on common stock
income after depreciation
balance = a +b
a)
b)
25000
15000
10000
98100
14002
84098
94098
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.