Question

On February 12, 2005, Nancy Trout and Delores Lake formed Kingfisher Corporation to sell fishing tackle. Pertinent information regarding Kingfisher is summarized as follows. Kingfisher's business address is 1717 Main Street, Ely, MN 55731; its telephone number is (218) 555-2211; and its e-mail address is [email protected]. The employer identification number is 11-1111111, and the principal business activity code is 451110. Nancy owns 50% of the common stock and is president of the company, and Delores owns 50% of the common stock and is vice president of the company. No other class of stock is authorized. Both Nancy and Delores are full-time employees of Kingfisher. Nancy's Social Security number is 123-45-6789, and Delores's Social Security number is 987-65-4321. Kingfisher is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. Kingfisher uses the straight-line method of deprecation for book purposes and accelerated depreciation (MACRS) for tax purposes. During 2018, the corporation distributed cash dividends of $80,000. Kingfisher's financial statements for 2018 are shown below.

Income Statement Income Gross sales $2,408,000 Sales returns and allowances (80,000) Net sales $2,328,000 Cost of goods sold (920,000) Gross profit $1,408,000 Dividends received from stock investments in       less-than-20%-owned U.S. corporations 12,000 Interest income:     State bonds $  14,000     Certificates of deposit 10,000 24,000 Total income $1,444,000 Expenses Salaries—officers     Nancy Trout $160,000     Delores Lake 160,000 $320,000 Salaries—clerical and sales 290,000 Taxes (state, local, and payroll) 85,000 Repairs and maintenance 56,000 Interest expense:     Business loans $  12,000     Loan to purchase state bonds 8,000 20,000 Advertising 6,000 Rental expense 68,000 Depreciation* 40,000 Charitable contributions 15,000 Employee benefit programs 24,000 Premiums on term life insurance policies on lives of Nancy Trout and       Delores Lake; Kingfisher is the designated beneficiary 16,000 Total expenses (940,000) Net income before taxes $  504,000 Federal income tax (106,680) Net income per books $397,320

*The depreciation expense for taxes is the sames as the depreciation expense per the books.

Balance Sheet Assets January 1, 2018 December 31, 2018 Cash $  380,000     $  337,300       Trade notes and accounts receivable 308,400     480,280       Inventories 900,000     1,012,000       State bonds 160,000     160,000       Federal income tax refund -0-     1,320       Certificates of deposit 140,000     140,000       Stock investments 300,000     300,000       Building and other depreciable assets 240,000     240,000       Accumulated depreciation (88,800)    (128,800)      Land 20,000     20,000       Other assets 3,600     2,000           Total assets $2,363,200     $2,564,100       Liabilities and Equity January 1, 2018 December 31, 2018 Accounts payable $  300,000     $  223,880       Other current liabilities 80,300     40,000       Mortgages 210,000     200,000       Capital stock 500,000     500,000       Retained earnings 1,272,900     1,590,220           Total liabilities and equity $2,363,200     $2,564,100

During 2018, Kingfisher made estimated tax payments of $27,000 each quarter to the IRS.

Determine Kingfisher's income tax liability for tax year 2018 providing the following information that would be reported on Form 1120 and supporting schedules.

Answer 1