Client Organizer for Endothon

You are a CPA who has been hired by Charlotte Turay, the president of Endothon Company, a local business that manufactures widgets, to prepare a tax return for the company.

Endothon was incorporated on March 1, 2016, and filed a timely entity classification election and S election on that same date. The business uses the hybrid method of accounting for tax purposes. Endothon Company properly accounted for all 1099-MISC income in its bookkeeping system, including income that vendors did not report to the IRS.

Endothon’s employer identification number is 12-3456789. Its headquarters and mailing address are 4801 South Commercial, Key West, FL 33040. The following two individuals are the company’s shareholders:

•  Charlotte Turay, President

•  Ownership: 60% of the company

•  Social Security (SS) number: 543-21-0986

•  Salary: $159,484

•  Anika Miller, Vice President

•  Ownership: 40% of the company

•  SS number: 234-56-7890

•  Salary: $106,323

Both shareholders work full time for Endothon and receive their W-2s at the company’s headquarters.

Endothon includes production wages and plant management wages in the cost of goods sold and does not attempt to prorate the cost of goods sold and operating items that have not already been separately stated in the trial balance under the uniform capitalization rules (Section 263A) of the Internal Revenue Code (IRC). Endothon’s total W-2 wages for 2018 are $1,869,717.

Business interest is derived on customer notes from defaulted accounts receivable balances in the ordinary course of trade for Endothon. Additionally, Endothon Company earns investment interest in a money market account (MM).

The business purchased new equipment on July 15, 2018, for $250,000. Endothon wants to deduct as much of the equipment’s cost as possible on this year’s tax return. Section 168 bonus depreciation was elected for the manufacturing equipment purchased in 2016, and the full amount of Section 179 depreciation was elected for the office equipment purchased the same year. Additionally, the company reports book depreciation in the trial balance, which typically differs from tax depreciation each year.

Charlotte Turay gives you the Work Opportunity Tax Credit information regarding two employees, Mei Phan and Ahmed Kalani. Mei Phan was hired on March 1, 2018, and is certified as a “veteran with a service-connected disability” without previous employment within the past seven months. Mei was paid $16,000 in W-2 wages during the year and worked 1,300 hours last year before leaving the company on January 5, 2019. Ahmed Kalani was hired on October 15, 2018, and is certified as a “designated community resident.” Ahmed was paid $22,500 in W-2 wages for 380 hours last year and continues to work full time with Endothon Company.

REQUIREMENTS


You must use the rubric to direct the creation of your submission because it provides detailed criteria that will be used to evaluate your work. Each requirement below may be evaluated by more than one rubric aspect. The rubric aspect titles may contain hyperlinks to relevant portions of the course.

A.  Complete Form 1120S using the information from the scenario and the “Client Organizer for Endothon” attachment. Include all supporting forms and statements.

Note: Please save the entire return as a pdf file and submit that file.Worksheets are not included in the IRS submission and therefore do not need to be included.

1.  List the correct number for each of the following lines in Form 1120S:

•  Line 6 “Total income (loss)”

•  Line 14 “Depreciation”

•  Line 18 “Employee benefit programs”

•  Line 20 “Total deductions”

•  Line 21 “Ordinary business income (loss)”

B.  Complete Schedule K “Shareholders’ Pro Rata Share Items” using the information from the scenario and the “Client Organizer for Endothon” attachment.

1.  Include the correct number for each of the following lines:

•  Line 4 “Interest income”

•  Line 13g “Other credits”

•  Line 16c “Nondeductible expenses”

C.  Complete a Schedule K-1 for each Endothon shareholder in Form 1120S using the information from the scenario and in the “Client Organizer for Endothon” attachment.

a.  Include the correct number for each ofthe following lines in Schedule K-1:

•  Line 1 “Ordinary business income (loss)”

•  Line 11 “Section 179 deduction”

             •  Line 13j “Credits”

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