Tax Return Problem 14-112:
KJJ Corp. was formed on October 10, 1998 by Kimberly Jen (123-45-6789), Jennifer James (234-56-7890) and James Kim (345-067-8901). It is a hardware store and it is located at 175 Clerk Road, Newtown, OH 45105. KJJ's employer identification number is 10-1010101 and its business code is 444130. KJJ's telephone number is (513) 525-1234 and its email address is [email protected].
KJJ Corp. uses the calendar year and the accrual basis. It uses straight-line depreciation for tax and book purposes and FIFO and lower-of-cost-or-market for inventory purposes.
Kimberly, Jennifer, and James each receive 200 shares of KJJ Corp.'s common stock on October 10, 1998. No other stock has been issued or is outstanding. Each is a fulltime employee of the firm and each is paid $200,000.
KJJ Corp. mad a $105,000 ($35,000 to each owner) cash distribution in 2011.
During 2011, KJJ Corp. made estimated federal tax payments of $55,000 each quarter.
Financial information for 2011 follows:
Income Statement
Income
Sales $5,400,000
Sales returns and allowances 20,000
Net Sales $5,380,000
Cost of goods sold 3,120,000
Gross profit 2,260,000
Interest income
Corporate bonds $20,000
State bonds 60,000 80,000
Dividend income 100,000
Total income $2,440,000
Expenses
Salaries-Officers $600,000
Salaries and wages- Other 510,000
Life insurance premiums on three owners/officers KJJ Corp. is the beneficiary 20,000
Repairs and maintenance 30,000
Taxes (state, local, payroll) 249,000
Interest expense
Loans to acquire state bonds $25,000
Other 47,000 72,000
Advertising 36,000
Charitable contributions 25,000
Depreciation 120,000
Employee benefits program 63,000
Total expenses 1,725,000
Net income before taxes $715,000
Federal income taxes (214,200)
Net income per books $500,800
Balance Sheet
12/31/10 12/31/11
Assets:
Cash $400,000 $550,000
Trade and accounts receivables 600,000 623,000
Inventories 1,500,000 1,330,000
Corporate bonds 250,000 260,000
State bonds 800,000 851,000
Stock (<20% owned, domestic corporations) 900,000 1,000,000
Prepaid federal income taxes 0 5,800
Property, plant, and equipment 3,000,000 3,030,000
Accumulated depreciation (1,100,000) (1,220,000)
Land 50,000 50,000
Other assets 6,000 3,000
Total assets $6,406,000 $6,482,800
Liabilities and Owner's Equity
Accounts payable $301,000 $257,000
Other current liabilities 405,000 430,000
Mortgages 1,500,000 1,200,000
Capital stock 3,000,000 3,000,000
Retained earnings 1,200,000 1,595,800
Total liabilities and owner's equity $6,406,000 $6,482,800
Prepare KJJ Corp's Form 1120 and related schedules - Schedules A, C, E, J, K, L, M-1, and M-2. (Do not complete Form 4562 [depreciation calculation] since you do not have all the information). Go to www.irs.gov and download the necessary forms.