Tax Return Problem

1. John Sullivan (123-45-6781) and George Adams (123-54-6782) are 70% and 30% owners, respectively, of
SA, Inc. (12-5111111), a Candy company located at 1005 4th Street, Tustin, CA 92872. SA, Inc S election
was made on January 15, 2014, its date of incorporation. The following information was taken from the
company’s 2019 income statement:

Interest income $100,000

Gross sales receipts 2,410,000
Beginning inventory 9,607
Direct labor (203,102)
Direct materials purchased (278,143)
Direct other costs (249,356)
Ending inventory 3,467
Salaries and wages (442,103)
Officers’ salaries ($75,000 each to John and George) (150,000)
Repairs (206,106)
Depreciation expense, tax and book (15,254)
Interest expense (35,222)
Rent expense (operating) (40,000)
Taxes (65,101)
Charitable contributions (cash) (20,000)
Advertising expenses (20,000)
Payroll penalties (15,000)
Other deductions (59,899)
Book income 704,574

SA’s accounting firm provides the following additional information.

Distributions to shareholders $100,000

Beginning balance, Accumulated adjustments account 111,148

2. Using the preceding information, prepare a 2019 Form 1120S and Schedule K–1s for John Sullivan and
George Adams, 5607 4th Street, Tustin, CA 92782. Complete the Forms 1125–A, 1125–E, and 4562. If any
information is missing, make realistic assumptions. Suggested software: Pro Connect Tax Online.

3. Prepare a letter to one of the S Corporation shareholders explaining what they should do with the
information on the K-1 on their individual tax returns.
4. Prepare write up describing the similarities and differences between an S Corporation, partnership 1065
and corporate tax return 1120 that you prepared. Also discuss the mechanics of the S Corporation return
and any significant you want to communicate to SA Inc. (planning ideas, etc.)

5. Assignment is due at 5:30 PM on April 30rd. You can e mail the assignment to the professor @
bgershenovitz@fullerton.edu on or before that date and time.