Question
In: Accounting
Sunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations....
Sunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations. Sunshine Company had the following income, expense, and loss items for the current year: Sales $650,000 Corporate dividend (from 5% owned corporation) 60,000 Municipal bond interest 25,000 Long-term capital gain 0 Short-term capital loss (8,000) Cost of goods sold 320,000 Depreciation 65,000 Nondeductible fines 4,000 Advertising 7,000 Utilities 6,000 Rent 5,000 Furthermore, Sunshine’s liabilities (all recourse) increased from $0 on 1/1 to $300,000 on 12/31 of the current year. 1) Assume that Sunshine Company is owned by Alvin as a sole proprietorship. Alvin received $2,400 per month ($28,800 in total) from Sunshine Company as an owner’s draw. Additionally, Alvin took $55,000 out of Sunshine Company near the end of the year as a partial distribution of profits.
a) Calculate the net business income of Sunshine Company/Alvin that would be reported on Schedule C of Alvin’s Form 1040.
b) How much of the $2,400 per month ($28,800 total) and the $55,000 distribution would Alvin include as taxable income on his Form 1040?
c) What amount of Alvin’s income will be subject to self-employment tax?
d) Note that you do not need to complete Schedule C or other forms, but these form will be a useful guide in completing this portion of the assignment.
2) Assume that Sunshine Company is a c corporation. Alvin contributed $60,000 to purchase 60% of the stock while his wife’s best friend, Ann, contributed $40,000 to purchase the remaining 40% of the stock when the corporation was formed this year. Alvin received a $2,400 per month salary ($28,800 in total). Ann doesn’t work for the company so she received no salary. The company distributed some profits at the end of the year by paying out a $55,000 dividend.
a) Calculate Sunshine Corporation’s taxable income and income tax liability to be reported on Form 1120.
b) What amount and type of income must Alvin report on his individual Form 1040 tax return?
c) What amount of Alvin’s income will be subject to self-employment tax?
d) What is Alvin’s basis in his Sunshine stock at the end of this year?
e) Note that you do not need to complete Form 1120 but this form and related schedules will be a useful guide in completing this portion of the assignment
Solutions
Expert Solution
| 1) | |||||||
| a) Calculation of Net Business Income of Sunshine Company / Alvin: | |||||||
| Particulars |
Amount ($) |
Amount ($) |
|||||
| Sales | 6,50,000 | ||||||
| Less: | |||||||
| Cost of Goods Sold | 3,20,000 | ||||||
| Depreciation | 65,000 | ||||||
| Non-Deductible Fines | - | ||||||
| Advertising | 7,000 | ||||||
| Utilities | 6,000 | ||||||
| Rent | 5,000 | -4,03,000 | |||||
| Net Business Income | 2,47,000 | ||||||
| b) Since Alvin is a Sole Proprietor of Sunshine Company, owner's draw ($28,800) | |||||||
| and $55,000 distributed profit will not be included in taxable income on his Form 1040. | |||||||
| c) The Income subject to Self-Employment Tax will $2,47,000 | |||||||
| d) The Income to be reported in Schedule C will be $2,47,000 | |||||||
| 2) | a) Calculation of Sunshine Corporation's Taxable Income and Income Tax Liability | ||||||
| Particulars |
Amount ($) |
Amount ($) |
|||||
| Sales | 6,50,000 | ||||||
| Less: | |||||||
| Cost of Goods Sold | 3,20,000 | ||||||
| Depreciation | 65,000 | ||||||
| Non-Deductible Fines | - | ||||||
| Advertising | 7,000 | ||||||
| Utilities | 6,000 | ||||||
| Rent | 5,000 | ||||||
| Alvin's Salary | 28,800 | ||||||
| Dividend | 55,000 | -4,86,800 | |||||
| Taxable Business Income | 1,63,200 | ||||||
| in Form 1120 | |||||||
| Income Tax Rate for Corporations | 21% | ||||||
| Income Tax Liability | 34,272 | ||||||
 ekkarill92 answered 1 year agoRelated SolutionsSunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations....Sunshine Company is a calendar year accrual-basis taxpayer and
is in its first year of operations. Sunshine Company had the
following income, expense, and loss items for the current year:
Sales
$650,000
Corporate dividend (from 5% owned corporation)
60,000
Municipal bond interest
25,000
Long-term capital gain
0
Short-term capital loss
(8,000)
Cost of goods sold
320,000
Depreciation
65,000
Nondeductible fines
4,000
Advertising
7,000
Utilities
6,000
Rent
5,000
Furthermore, Sunshine’s liabilities (all recourse) increased
from $0 on 1/1 to $300,000 on...
Sunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations....Sunshine Company is a calendar year accrual-basis taxpayer and
is in its first year of operations. Sunshine Company had the
following income, expense, and loss items for the current year:
Sales
$650,000
Corporate dividend (from 5% owned corporation)
60,000
Municipal bond interest
25,000
Long-term capital gain
0
Short-term capital loss
(8,000)
Cost of goods sold
320,000
Depreciation
65,000
Nondeductible fines
4,000
Advertising
7,000
Utilities
6,000
Rent
5,000
Furthermore, Sunshine’s liabilities (all recourse) increased
from $0 on 1/1 to $300,000 on...
Sunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations....Sunshine Company is a calendar year accrual-basis taxpayer and
is in its first year of operations. Sunshine Company had the
following income, expense, and loss items for the current year:
Sales
$650,000
Corporate dividend (from 5% owned corporation)
60,000
Municipal bond interest
25,000
Long-term capital gain
0
Short-term capital loss
(8,000)
Cost of goods sold
320,000
Depreciation
65,000
Nondeductible fines
4,000
Advertising
7,000
Utilities
6,000
Rent
5,000
Furthermore, Sunshine’s liabilities (all recourse) increased
from $0 on 1/1 to $300,000 on...
Sunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations....Sunshine Company is a calendar year accrual-basis taxpayer and
is in its first year of operations. Sunshine Company had the
following income, expense, and loss items for the current year:
Sales
$650,000
Corporate dividend (from 5% owned corporation)
60,000
Municipal bond interest
25,000
Long-term capital gain
0
Short-term capital loss
(8,000)
Cost of goods sold
320,000
Depreciation
65,000
Nondeductible fines
4,000
Advertising
7,000
Utilities
6,000
Rent
5,000
Furthermore, Sunshine’s liabilities (all recourse) increased
from $0 on 1/1 to $300,000 on...
Sunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations....Sunshine Company is a calendar year accrual-basis taxpayer and
is in its first year of operations. Sunshine Company had the
following income, expense, and loss items for the current year:
Sales
$650,000
Corporate dividend (from 5% owned corporation)
60,000
Municipal bond interest
25,000
Long-term capital gain
0
Short-term capital loss
(8,000)
Cost of goods sold
320,000
Depreciation
65,000
Nondeductible fines
4,000
Advertising
7,000
Utilities
6,000
Rent
5,000
Furthermore, Sunshine’s liabilities (all recourse) increased
from $0 on 1/1 to $300,000 on...
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Sales
$650,000
Corporate dividend (from 5% owned corporation)
60,000
Municipal bond interest
25,000
Long-term capital gain
0
Short-term capital loss
(8,000)
Cost of goods sold
320,000
Depreciation
65,000
Nondeductible fines
4,000
Advertising
7,000
Utilities
6,000
Rent
5,000
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