Tax Return Project

University of Nevada Las VegasACC 410/610, Federal Taxation
Tax Return Problem
Spring Semester, 2024
On April 15 , 2011, Janet Morton and Kim Wong began doing business and incorporated
Furry Critters, Inc., in the State of Texas to sell pets and pet supplies on-line and at retail.
Pertinent information regarding Furry Critters is summarized as follows.
o Furry Critters’ business address is 1010 Northwest Parkway, Dallas, TX
75225; its telephone number is (214) 555-2211; and its e-mail address is
petkingdom@pki.com.
o The employer identification number is 11-1111112, and the principal business
activity code is 459910. The business activity and products are pet supplies.
o Janet and Kim each own 40% of the common stock; Janet is president and Kim
is vice president of the company. The remaining 20% of the common stock is
owned by Texas Venture Capital Corporation. No other class of stock is issued
or outstanding.
o Ryan James owns100% of the stock of Texas Venture Capital Corporation and
is its chief executive officer. Its employer identification number is 11-1111119.
Its business address is 1400 Flowers Avenue, Carrollton, TX 75007.
o Janet, Kim, and Ryan are all members of the Board of Directors.
o Furry Critters does have an annual audit of it financial statements. Its auditor
is the firm of Young and Anderson CPAs, LLP. Furry Critters’ stock is not
publicly traded.
o Both Janet and Kim are full-time employees of Furry Critters. Janet’s Social
Security number is 123-45-6788, and Kim’s Social Security number is 123-456787.
o Janet will sign the tax return on behalf of Furry Critters.
o Janet’s home address is 1012 Northwest Parkway, Dallas, TX 75225. Kim’s
home address is 1014 Northwest Parkway, Dallas, TX 75225.
o Furry Critters is an accrual method, calendar year taxpayer. Inventories are
determined using FIFO and the lower of cost or market method.
o During 2023, the corporation distributed cash dividends of $300,000 to the
shareholders.
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o During 2023, Furry Critters made estimated tax payments to the IRS of
$60,000 each quarter on the due date of each quarterly payment.
o Furry Critters has no foreign operations and no foreign source income.
o Furry Critters owns no interest of greater than 1% in any other corporation,
partnership, limited liability company, trust, etc.
Furry Critters’ financial statements for 2023 are shown below on Pages 3 -5:
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BALANCE SHEET
ASSETS
Cash
Trade notes and accounts receivables
Inventories
Stock investments
State/municipal bonds
Certificates of deposit
Prepaid federal tax
Buildings and other depreciable assets
Accumulated depreciation
Land
Other
assets
Total Assets
Beginning
Ending
$980,000
1,855,000
2,580,000
1,125,000
275,000
500,000
0
4,750,000
(880,000)
812,500
$1,008,380
2,139,803
2,830,000
1,125,000
275,000
425,000
25,000
5,214,500
(1,230,000)
812,500
88,000
102,075
$12,085,500
$12,727,258
$1,968,000
215,000
4,221,000
$2,151,287
238,000
4,150,000
2,500,000
2,500,000
3,181,500
3,687,971
$12,085,500
$12,727,258
LIABILITIES AND EQUITIES
Accounts payable
Other current liabilities
Mortgages
Capital
stock
Retained earnings
Total Liabilities &
Capital
3
Income Statement
Per
Financial
Statements
Revenue
Gross sales
Sales returns and allowances
Net sales
Cost of goods sold
Gross profit
$6,400,250
($150,000)
6,250,250
(2,680,500)
3,569,750
Dividends – Received from stock investments
in less than 20% owned U.S. Corporations
Interest income – state of Texas Bonds
Interest income – certificates of deposit
28,000
11,500
24,000
Total Income
3,633,250
Expenses
Salaries – clerical and sales
Salaries – officers:
Janet Morton
Kim Wong
Taxes – state, local and payroll
Repairs and maintenance
Utilities
Meals – Business
Entertainment
Interest expense
Insurance – casualty
Advertising
Rental expense
Depreciation
Charitable contributions – cash
Employee benefit programs
Premiums on term life insurance – policies
on lives of Janet Morton and Kim Wong,
845,000
200,000
200,000
220,000
45,000
40,000
91,000
75,000
128,500
18,000
90,000
148,000
350,000
28,000
72,000
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Furry Critters is the designated beneficiary
Miscellaneous – sales tax penalty paid to
Texas
Professional fees (accounting services)
32,000
4,500
25,400
Total Expenses
Net income before Federal income tax
Federal income tax expense
Net Income per Financial Statements
2,612,400
1,020,850
(214,379)
$806,471
o Furry Critters uses the straight-line method of depreciation for book purposes
and accelerated depreciation (MACRS, Sec. 179 and/or Bonus)) for tax
purposes. For the tax year ended December 31, 2023, Furry Critters purchased
and placed-in-service the following capital additions:
Description
Date
PlaceInService
Cost
Store Fixtures – New
2/25/23
$275,000
Office Computers – New
4/24/23
30,000
Office Furniture & Fixtures New
8/6/23
67,500
2023 BMW Series 7
Automobile – New
10/1/23
92,000
$464,500
For income tax purposes, Furry Critters’ policy is to maximize its tax
depreciation. Thus, it will claim MACRS, Bonus and Sec. 179
depreciation when available. Consequently, Furry Critters has claimed
either bonus or Sec. 179 depreciation on all its assets placed-in-service
prior to January 1, 2023. Thus, the prior year additions are fully
depreciated for income tax purposes as of December 31, 2022.
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o Additional information pertaining to the 2023 BMW Series 7 for the year
ended December 31, 2023, is:
o Business usage: 100%
o Total miles: 1,800
o The company has written evidence to support the mileage and business
usage.
o The company has a written policy that prohibits personal use of the
automobile by employees or members.
o The company does not own or leases any other automobiles.
o The vehicle is used by both officers only for business use.
o The detail of Furry Friends’ rental expense of $148,000 is as follows:
o Building – $120,000
o Equipment, furniture, and computers – $28,000
o Business meals were all provided by restaurants.
o Furry Critter’ charitable contributions were all made in cash to various
qualifying Sec. 501(c)(3) charitable organizations.
o The sales and use tax penalty was paid to the State of Texas.
o Furry Critters’ gross receipts for the three previous tax year are:
o 2022: $6,200,000
o 2021: $5,950,000
o 2020: $5,800,000
o Retained earnings are unappropriated.
o All required Form 1099s for 2023 were filed by the corporation.
Assignment
1. Prepare the following tax return forms, schedules and supporting schedules and
attachments where requested, for Furry Critters, Inc. for the year ended December
31, 2023:
a. Book-to-Tax Reconciliation (Excel worksheet attached)
b. Form 1120, U.S. Corporation Income Tax Return (pages 1-6)
c. Form 1125-A, Cost of Goods Sold
d. Schedule G, Information on Certain Persons Owning the Corporation’s Voting
Stock
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e. Schedule M-3, Net Income (Loss) Reconciliation for Corporations (page 1
only)
f. Form 1125-E, Compensation of Officers
g. Form 4562, Depreciation and Amortization
h. Applicable supporting schedules
2. You can work by yourself or in groups of up to Four (4) students. Make sure your
work product contains the names of all group members. Group members will receive
the same grade.
3. Do not efile the return. (It would be rejected.) Assume the return has already been
extended. Form 7004 has been prepared and filed extending the due date. You do not
need to prepare it.
4. The forms can be completed by hand or using intuit ProConnnect business tax
preparation software. If completed by hand, your handwriting must be legible. You
have access to intuit ProConnect business tax return software for 2023 business tax
returns. You may use the software to prepare the return. I posted previously on
Canvas the instruction for you to register with intuit ProConnect. Alternatively, you
may use any corporate tax return preparation software that you have access to prepare
the return.
5. 2023 Forms and instructions are available at the IRS web site, irs.gov. The
instructions are a valuable resource.
6. The project is due and must be emailed to me at don.jones@unlv.edu no later than
11:00 PM on Monday, April 29, 2024. Your tax return project must be in one pdf
file using the following naming convention:
a. Section 1001 Students: 410.01(your last name(s)).TRproject.Sp2024.pdf.
For example, my file name would be: 410.01.jones.TRproject.Sp2024.pdf.
b. Section 1003 Students: 410.03(your last name(s)).TRproject.Sp2024.pdf.
For example, my file name would be: 410.03.jones.TRproject.Sp2024.pdf.
c. If I do not receive your project in this format, I will return it to you
which may result in your project being handed in late.
7. Your file documents must be in the following order: 1) Book-to-Tax
Reconciliation, 2) Form 1120, pages 1-6, 3) Form 1125-A, 4) Schedule G, 5)
Schedule M-3, 6) Schedule 1125-E, 7) Form 4562, and 8) any supporting
schedules. If I do not receive your project in this order, I will return it to you
which may result in your project being handed in late.
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8. Failure to hand in the project will result in an automatic reduction of one (1)
letter grade for this course. If the project is handed in late after the above due
date and time, your grade will be reduced by 50%.
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Furry Critters, Inc.
Book to Tax Reconciliation ( Schedule M-1)
Worksheet
Year Ended December 31, 2023
Per Financial
Statements
Book-to-Tax
Differences
Revenue
Gross sales
Sales returns and allowances
Net sales
Cost of goods sold
Gross Profit
Dividends – Received from stock investments
in less than 20% owned U.S. Corporations
Interest income – state/municipal bonds
Interest income – certificates of deposit
Total Income
Expenses
Salaries – clerical and sales
Salaries – officers:
Wei Chen
Alexandra Rojas
Taxes – state, local and payroll
Repairs and maintenance:
Utilities
Meals – Business
Entertainment
Interest expense
Insurance – casualty
Advertising
Rental expense
Depreciation
Charitable contributions – cash
Employee benefit programs
Premiums on term life insurance – policies
on lives of Janet Moryton and Kim Wong,
$6,400,250
($150,000)
6,250,250
(2,680,500)
3,569,750
28,000
11,500
24,000
3,633,250
845,000
200,000
200,000
220,000
45,000
40,000
91,000
75,000
128,500
18,000
90,000
148,000
350,000
28,000
72,000
(11500)
Critter World is the designated beneficiary
Miscellaneous – Sales tax penalty paid to Texas
Professiona fees (accounting services)
Total Expenses
Net income before Federal income tax
Federal income tax expense
Net Income per Financial Statements
Taxable Income per Sch. M-1, Line 10
Special deduction (Dividends Received)
Taxable Income per Line 30
32,000
4,500
25,400
2,612,400
1,020,850
(214,379)
$806,472
Per Tax Return
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