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Tax Return Final Project Sun & Fun Summary Can be done in small groups (2- 3) Due on the last day of class On June 6, 2001, Joe Mooney and Guy...

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Tax Return Final Project Sun & Fun Summary Can be done in small groups (2-3) Due on the last day of class On June 6, 2001, Joe Mooney and Guy Flick formed Sun and Fun Beach Products to manufacture and sell beach gear, toys, and accessories. For several years prior, Joe had run a smaller shop “Cheap Beach Stuff” which operated as a cash basis sole proprietorship. Cheap Beach Stuff reported the following balance sheet: June 6, 2001 Tax Basis Fair Value Cash 6,137 6,137 Accounts Receivable 0 24,558 Inventory 60,647 129,305 Building 55,250 110,000 Land 29,750 55,000 151,784 325,000 Accounts Payable 0 13,189 Notes Payable 24,000 24,000 Mortgage on Land/Building 40,000 40,000 Equity 87,784 247,811 151,784 325,000 Joe transfers all of the assets and liabilities of Cheap Beach Stuff for 70% of the common stock in Sun & Fun. Guy contributes cash of $40,000, inventory worth $56,205 (basis of $38,013) and provides services to help organize the corporation worth $10,000 for the remaining 30% of the common stock in Sun & Fun. General Information regarding the corporation is summarized as follows: The business address is 350 Main Street, White Sands, Florida The employer identification number is 75-3392543; the principal business activity code is 339900. Joe is president of the company and Guy is the secretary-treasurer. Both are full-time employess of the corporation. Joe’s compensation is $150,000 (SSN 123-45-6789). Guy’s compensation is $90,000 (SSN 333-22-4444). The corporation uses the accrual method of accounting and reports on a calendar year basis. Inventory has been consistently valued at lower of cost or market under the FIFO method. Inventory capitalization rules of IRC section 263A do not apply due to the “small business exception” (average annual gross receipts for the three preceding taxable years do not exceed $10 million). The corporation was not a grantor to a foreign trust, nor does the corporation maintain a foreign bank account or foreign security account. No net operating loss, capital loss, general business credit, prior year minimum tax credit, or other carryovers to 2012 exist.
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Detailed information regarding some of Sun & Fun’s activities and transactions during the year: 1. Sun & Fun purchased some new manufacturing equipment (7-year-property) that cost $13,580. MACRS on all other existing depreciable assets totaled $69,163 for 2012. 2. Sun & Fun purchased at par $50,000 of Seabrook Station Utility bonds. Interest of $1,500 was received on the bonds during the year. 3. Sun & Fun sold a warehouse for $30,000. The consolidated their warehouse activities and chose not to replace the warehouse. The warehouse cost $40,000. Accumulated depreciation for book purposes was $14,000. Cost recovery for tax purposes totaled $7,179. 4. Sun & Fun sold machinery for $6,900. The machine cost $15,350. Accumulated depreciation for book purposes was $7,246. Cost recovery for tax purposes totaled $9,596. 5. Sun & Fun has a qualified retirement plan which covers all of their employees. During 2012 they made total contributions of $23,900 to this plan, of which $10,000 was for Joe and Guy ($5,000 each). 6. Included in employee benefits expense are $532 and $420 premiums for $50,000 (face value) group term life insurance for Joe and Guy, respectively. Family members are named as beneficiaries in the policies. 7. The key-man life insurance provided $500,000 coverage on Joe and Guy. The company is the owner and the beneficiary of the policies. 8. Contributions for the year included: a. World Wildlife Fund, Inc. ……………………………. .29,963 b. American National Red Cross………………………….3,000 c. Woodbury Church Food Pantry……………………….1,969 9. An analysis of the Allowance for Doubtful Accounts reveals: Balance – December 31, 2011………………………………$15,782 2012 Transactions Bad Debt Expense ……………………………………….3,105 Recovery of account previously written off…. ..1,200 Accounts written off as uncollectible…………. ..(4,756) Balance – December 31, 2012………………………………. .$15,331 10. Taxes included: Property Taxes…………………….21,244 Payroll Taxes……………………….51,883 Other Misc. Taxes ……………….…2,168
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