Portfolio Project: Trust and Estates

| September 28, 2018

Portfolio Project: Trust and
Estates – Part 1
For this assignment, you will complete
two tax returns (Corporation Return and Partnership Return), for 175 points
each. You may use the tax software found at.intuit.com/tax/proseries/”>http://accountants.intuit.com/tax/proseries/
Please note there is a limit of 5
returns per session.
PART I – Tax Return #1,
Corporate Return??Background
Jane Collier, James Taye, and Steve
Allwine each own one-third of the common stock of Tasty Treats and Beverages.
The corporation was incorporated on April 3, 2004. It has only one class of
stock outstanding and operates as a C corporation for tax purposes. Tasty
Treats and Beverages caters kid-friendly social events.
• Located at 1215 Blue Horizon, Dallas, TX 12234.
• Employer Identification Number is 12-34567890.
• Business activity is catering food. Its business activity code
is 722300.
• The shareholders also work as officers for the corporation as
follows:
• Jane is the chief executive officer and president (Social
Security number 242-62-5786).
• James is the executive vice president and chief operating
officer (Social Security number 563-58-8923).
• Steve is the vice president of finance (Social Security number
575-58-1572).
• All officers devote 100% of their time to the business
• All officers are U.S. citizens.
• Use the accrual method of accounting and have a calendar
year-end.
• Four equal estimated tax payments of $28,000 each quarter. Its
tax liability last year was $85,000.
• If it has overpaid its federal tax liability, the corporation
would like to receive a refund.
• Dividend paid of $20,000 to its shareholders on October 1. The
Corporation had ample earnings and profits
(E&P) to absorb the distribution.
Financial Statements

Tasty Treats and Beverages, Inc.

Income Statement

For year ended December 31, 2013

Revenue
from sales

1,500,000

Sales
returns and allowances

(25,000)

Cost
of goods sold

(325,000)

Gross
profit from operations

1,150,000

Other
Income:

Capital
loss

(7,500)

Dividend
income

15,000

Interest
income

12,000

Gross
income

1,169,500

Expenses:

Compensation

(750,000)

Depreciation

(12,000)

Bad
debt expense

(7,800)

Meals
and entertainment

(3,000)

Maintenance

(2,500)

Property
taxes

(10,000)

State
income taxes

(30,000)

Other
taxes

(11,000)

Rent

(28,000)

Interest

(7,300)

Advertising

(6,200)

Professional
services

(5,000)

Employee
benefits

(8,000)

Supplies

(2,500)

Other
expenses

(1,750)

Total
expenses

(885,050)

Income
before taxes

284,450

Federal
income tax expense

96,713

Net
income after taxes

187,737

Tasty
Treats and Beverages, Inc.

Balance Sheet

December 31, 2013

ASSETS

Jan-13

Dec-13

Cash

175,000

190,000

Accounts
Receivable

63,000

54,000

Allowance
for doubtful accounts

(8,000)

(7,000)

Inventory

225,000

275,000

US
government bonds

30,000

25,000

State
and local bonds

50,000

50,000

Investments
in stock

325,000

335,000

Fixed
assets

475,000

485,000

Accumulated
depreciation

(198,000)

(215,000)

Other
assets

11,000

12,000

Total
assets

1,148,000

1,204,000

(Liabilities
and Stockholder’s Equity)

Accounts
payable

225,000

200,000

Other
current liabilities

135,000

55,000

Other liabilities

75,000

68,263

Capital
stock

250,000

250,000

Retained
earnings

463,000

630,737

Total
liabilities and stockholder’s equity

1,148,000

1,204,000

Additional Information

• Inventory-related purchases during 2013 were $175,000. It values
its inventory based on cost using the FIFO
inventory cost flow method. Assume the
rules of §263A do not apply.
• Of the $12,000 interest income, $1,500 was from a City of Dees
bond that was used to fund public activities
(issued in 2011), $1,750 was from an Border
city bond used to fund private activities (issued in 2004), $2,500
was from a U.S. Treasury bond, and the
remaining $6,250 was from a money market account.
• Dividend income came from ABC Inc. Owned 10,000 shares of the
stock in ABC Inc. at the beginning of the
year. This represented 10 percent of
outstanding stock.
• On September 1, 2013, the corporation sold 1,000 shares of its
ABC stock for $15,000. It had originality
purchased these shares on June 13, 2006,
for $7,500. After the sale, the Corporation owned 9 percent of ABC.
• compensation is as follows:
* Jane
$175,000
* James
$150,000
* Steve
$150,000
* Other
$275,000
• The Corporation wrote off $10,000 in accounts receivable as
uncollectible during the year.
• Regular tax depreciation was $28,000. None of the depreciation
should be claimed on Form 1125A.
• The $7,300 interest expense was from a business loan.
• Other expenses include $3,000 for premiums paid on term life
insurance policies for which Tasty Treats and
Beverages, Inc. is the beneficiary. The
policies cover the lives of Jane, James, and Steve.

Portfolio
Project: Trust and Estates – Part 2

PART II – Tax Return #2,
Partnership Return (Form 1065, only Page 1 and Schedule K required)
Background
The Rowdy Fun is a limited partnership
and was formed on June 1, 2005, by Thomas Kyle, its general partner, and two
other limited partners when they each contributed an equal amount of cash to
start the new enterprise. Rowdy Fun is an outdoor equipment retailer focused on
selling outdoor activities gear. Thomas has a 33.33% profits and capital
interest and the limited partners hold the remaining 66.66% of the profits and
capital interests. Their profits and capital interests have remained unchanged
since the partnership was formed. Thomas is actively involved in managing the
business while the limited partners are simply investors.
• Rowdy Fun is located at 8955 Golden Drive, Sunnydale, AZ 34592.
• The employer identification number for Rowdy Fun is 47-8593563.
• Rowdy Fun uses the accrual method of accounting and has a
calendar year end.
• Thomas’ address is 853 Crystal Drive, Sunnydale, AZ 34592.

Additional Information
• Rowdy Fun has total assets of $1,900,000 and total liabilities
of $550,000 at the beginning of the year and total
assets of $2,300,00 and total liabilities
of $725,000 at the end of the year.
• Partnership liabilities consist of accounts payable, and Thomas,
as general partner, is legally responsible for
paying these liabilities if the partnership
does not.
• Five years ago, Rowdy Fun purchased an original outdoor statue
with the intent for display in the store. In
2013, the statue was sold. The $15,000
recognized gain from the sale is reflected in the income statement.
• For tax purposes, Rowdy Fun has consistently elected under
Section 179 to expense any furniture or fixtures
purchased every year since it was formed.
There is no tax basis in any of its depreciable assets. This year,
Rowdy Fun expensed $23,000 of signs and
display cases for tax purposes.
• On November 20th, Rowdy Fun distributed $90,000 ($30,000 per
partner) to the partners.
• Miscellaneous expenses include a $1200 fine for violating a
local ordinance.
• Rowdy Fun maintains its books using generally accepted
accounting principles.

Financial Statements

Rowdy Fun

Income Statement

For year ended December 31, 2013

Sales

975,000

Sales
returns and allowances

(25,000)

Cost
of goods sold

(300,000)

Gross
profit from operations

650,000

Other
Income:

Interest
from Money Market

3,500

Gain
for sale of statue

15,000

Gross
income

668,500

Expenses:

Employee
wages

(125,000)

Interest
on accounts payable

(2,000)

Payroll
and property taxes

(45,000)

Supplies

(26,000)

Rent
on retail building

(20,000)

Depreciation
on furniture and fixtures

(15,400)

Advertising

(4,000)

Guaranteed
payments to Thomas Kyle

(40,000)

Utilities

(16,000)

Accounting
and legal services

(5,000)

Meals
and entertainment

(500)

Charitable
Contributions

(375)

Miscellaneous
expense

(425)

Total
expenses

(299,700)

Net
Income for Books

368,800

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