The Snap-It-Open Corporation Incorporated And Began Operations 26513 – Assignment Online |

Business Finance- Assignment Online |

The Snap-It-Open Corporation Incorporated And Began Operations 26513- Assignment Online |

Accounting – Assignment Online |






The Snap-It-Open Corporation incorporated and began operations on January 15 of the current year. Its address is 3701 Commerce Drive, Baltimore, MD 23239. Its employer identification number is 69-7414447. It elects to file its initial tax return as a calendar-year corporation and uses the accrual method of accounting. It elects the FIFO method of inventory valuation. JasoriSPrull (SSN 333-33-3333) and Martin Winsock (SSN 555-55-5555) formed the business. They each contributed $250,000 cash for 50 percent of the 100,000 shares of $1 par value stock issued and outstanding. The company was formed to assemble and market a unique, compact, snap-open umbrella and its business activity code is 339900. These umbrellas are sold to a variety of organizations as premiums. The company purchases the umbrella frames and several types of waterproof fabric for the umbrella material and cov-ers from various manufacturers. It prints the organizations’ advertising logos or other designs on the umbrella material and covers. It then assembles these on the umbrella frames for delivery to the customer along with the covers. On January 16, the company placed in service two new machines that they had purchased for $250,000 each for printing and cutting the fabric for the umbrellas and two used umbrella assembly machines purchased for $200,000 each. The company obtained a bank loan of $750,000 secured by the machines. Jason and Martin were required to personally guarantee this loan that has an 8 percent annual interest rate on the unpaid balance. The first principal and inter-est payment of $160,000 is not due until January 16 of next year. During the year, the company purchased $150,000 of fabric and $210,000 of umbrella frames. It returned one order of frames valued at $5,000 because of a defect in the snap-open mechanism and received a cash refund for that amount. Both Jason and Martin worked full-time in the business. Jason was the sales-person for the company and Martin managed the office and the printing and assembly operations. Each received a salary of $60,000 for the year. They had six employees with the following incomes for the year: $45,000 for an accountant; $21,000 for a receptionist; $28,000 for each of two print machine operators; and $25,000 for each of two assembly machine operators. There are no accrued salaries or taxes as of the end of the current year. FUTA taxes are assessed on the first $7,000 of wages at a rate of 6.0 percent. During the year, the company had $1,535,000 in umbrella sales and collected $1,180,000 on these sales. They also paid the following expenses in cash:

Rent $240,000

Repairs and Maintenance 20,000

Utilities 80,000

Taxes and Licenses (excluding FICA and FUTA taxes) 10,000

Health Insurance 16,000

Advertising 40,000 Travel (excluding meals) 20,000

Meals and Entertainment 15,000

Group Term Life Insurance 2,000


As an accrual-basis taxpayer, the company recognized $57,500 in interest expense on the note ($750,000 x .08 x 11.5/12) and established an allowance account for bad debts equal to two percent of sales. They recognized depreciation expense for financial accounting equal to 10 percent of the purchase price for the new printing machines and 12.5 percent of the purchase price for the used assembly machines. Their inventory at year-end consisted of $15,000 of fabric and $18,000 of umbrella frames based on the FIFO inventory method. (For simplicity, you are only required to allocate the factory salaries to the calculation of cost of goods sold.) The company made estimated tax payments of $40,000 for the year. Required Part a. Prepare a financial accounting income statement (before income tax) and balance sheet for Snap-It-Open Corporation for the current year. (Do not forget to compute FICA and FUTA taxes for all employees.) Part b. Complete a Form 1120 and Form 4562 for Snap-It-Open Corporation using the following additional information. The corporation wrote off no bad debts for the year and it maximized its cost recovery deductions on the four machines purchased. Use the latest available tax forms from the IRS Web site at



The Rite-Way Plumbing Company began business three years ago as of March 1 of the current tax year in Sarasota. Its business address is 124 Division Lane, Sarasota, FL 33645. Its employer identification number is 69-3456789. Its princi-pal business activity is residential plumbing repairs and maintenance; its business code is 238220. It files its income tax returns on the calendar-year basis. The business was formed as a limited partnership by two brothers, John Henry (SSN 555-55-5555) and James Henry (SSN 666-66-6666), who work full-time in the business, and their father Tom Henry (SSN 888-88-8888), the limited partner. The brothers each have a 25 percent interest in the income, loss, and cap-ital of the business while their father owns a 50 percent interest in income, loss, and capital, but takes no active interest in the business other than as that of an investor. At the end of the current year, its operations showed cash gross receipts of

$1,240,000 and the following cash expenditure items: Salaries and wages (excluding John and James) Repairs and Maintenance Rent Taxes and Licenses Advertising Pension Plans (excluding John and James) $378 2,000 28,000 3 000 183 , 0070 15,000 Health/Dental Insurance 16,000 Material Purchases 220,000 Truck Expense 45,000 Insurance (excluding health/dental) 65,000 Legal/Professional Fees Office Expenses 63,000000 Utilities/Telephone 8,000 Meals/Entertainment 4,000 Draw—John 75,000 Draw—James 60.000 Total Cash Expenditures $966,000

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