ACCT 410 Corporate Tax Return #4

ACCT 410 Corporate Tax Return #4

In 2020, Katherine Riley and Mason McMullen decided they would like to start their own gourmet hamburger business. Katherine and Mason believed that the public would love the recipes used by Katherine’s mom, Caroline Woodbrook. They also thought they had the necessary experience to enter this business since Mason currently owned a fast-food franchise business while Katherine had experience operating a small bakery. After doing some market research, they established Bovine’s Inc. on February 1 and made a timely and effective election to be taxed as an S corporation. The company’s address is 5432 Partridge Pl., Tulsa, Oklahoma 74105, and its employer identification number is 88-7204104.

The company started modestly. After refurbishing an old gas station that it had purchased, the company opened for business on February 15, 2020. The business was a booming success. By the end of 2020, the company had established two other locations.

Bovine’s has three shareholders who own stock as follows:

Katherine Riley 500 shares

Mason McMullen 200 shares

Caroline Woodbrook 300 shares

On the formation date, shareholders made con­tributions as follows:

  • Katherine Riley contributed $30,000 in cash and 200 shares of MND stock, a pub­licly held company, which had a fair market value of $20,000. Katherine had pur­chased the MND stock on October 3, 2004, for $8,000.
  • Mason McMullen contributed equipment worth $35,000 and with a basis of $29,000.
  • Caroline Woodbrook contributed $30,000 in cash.

The company is on an accrual basis and has chosen to use the calendar year for tax purposes. Its adjusted trial balance for financial accounting purposes is linked here.

The company has provided additional information below.

  • Ten percent of the notes payable are due each year for the next 10 years.
  • The legal costs were for work done by Bovine’s attorney in February for draft­ing the articles of incorporation and by-laws.
  • Accounting fees were paid in May for setting up the books and the accounting system.
  • Miscellaneous expenses included a one-time $100 fee paid in February to the State of Oklahoma to incorporate.
  • Bovine’s sold the MND for $38,000 on April 14. Shortly before the sale, MND had declared and paid a dividend. Bovine’s received $2,000 on April 1. MND is incorporated in Delaware.
  • Bovine’s has elected not to use the limited expensing provisions of Code § 179 but has otherwise claimed the maximum depreciation for all assets. It made any other elections required to minimize the corporation’s tax liability. Assume 2020 depreciation for tax purposes is $11,500.
  • Katherine Riley (Social Security No. 447-52-7943) is president of the corporation and spends 90% of her working time in the business. She received a salary of $60,000. No other officers received compensation.
  • The life insurance policy covers Katherine’s life, and she has the right to name the beneficiary.

Based on this information, Bovine’s has asked your firm to prepare its 2020 Form 1120S. The only items that your supervisor will review (grade) are Form 1120S along with Schedules K, L, M-1, M-2 (Column (a) only), and one K-1 (for Katherine only); however, you may require more forms to derive all of the correct information.

Hint: You may need to make some changes to the trial balance, such as splitting one line into two or combining two lines into one item. You will also need to determine book income yourself this time – use the trial balance to create your “book” financial statements.

Notes: I take off points for pennies and negative numbers (where they don’t belong).

You MUST submit one file that contains all required forms in the correct order. If you turn in a portfolio, zip file, or multiple files, I will reduce your grade by 20%.

Please be wary of “fillable” forms online. If you submit a blank document, your grade will be zero.

Due Date: Submit it through Blackboard by the due date in the syllabus.

Additional Information:

Just as you would with a client, if you have questions about the information provided, you may ask me. To do so, please put your questions in an email. I will give you as much information as a client would be able to do. If you need help with the tax return itself, please see me during office hours. Be sure your email is as professional as it would be for a real client!


I select specific lines out of the required forms and schedules and assign them each between one and six points. I adjust my answers to avoid taking points off for carryforward mistakes. I take off one point for every math error.

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