Taxation

Taxation. Bizrate Electronics, Inc.

A “C” Corporation

For the Year Ended December 31, 2018

Bizrate Electronics was organized on February 22, 2018, by Jon Jones and Billy Burt. Jon contributed $270,000 cash and SBUX stock (acquired 01/01/2017) worth $30,000 for 60% of Bizrate stock, while Billy contributed $200,000 cash for 40% of the stock. Jon’s social security number is 123-45-6789 and Billy’s is 987-65-4321. Bizrate’s employer ID number is 12-3456789. Bizrate began business on March 1, 2018. Bizrate is a retail electronics outlet located at 118812 Josey Lane, Louisville, KY 40018. Bizrate uses the accrual method of accounting, the first-in, first-out (FIFO) inventory method, and a calendar year.

Bizrate’s 2018 income statement, balance sheet, and statement of changes in retained earnings are on the following pages..

Bizrate Electronics, Inc.

Income Statement

For the Year Ended December 31, 2018

Sales 4,700,000
Returns and Allowances (50,000)
4,650,000
Beginning Inventory 0
Purchases 4,050,000
4,050,000
Ending Inventory (1,700,000) (2,350,000)
Gross Profit 2,300,000
Expenses
Salaries (a) 980,000
Depreciation (b) 75,400
Advertising 30,000
Bad Debts 39,000
Rent 100,000
Interest (c) 39,500
Utilities 38,300
Delivery Expense 34,900
Office Supplies 46,200
Repairs and Maintenance 29,000
Organization Expense (d) 6,000
Meals and Entertainment 80,000
Insurance Expense (e) 36,000
Payroll Taxes 113,300
2018 Federal Income Tax Deposits 250,000
Other Taxes 20,000
Fines and Penalties (Traffic) 1,000
Accounting and Legal 12,000
Charitable Contributions – Red Cross 18,000
Real Estate Taxes on Investment Land 800 1,949,400
350,600
Other Income
Gain on Sale of Stock (f) 4,000
Sale of Delivery Truck (g) 8,600
Interest on County Tax Exempt Bonds 1,100
Interest on CDs 11,500
Dividends from US Corporations (h) 5,600 30,800
Net Income 381,400

Bizrate Electronics, Inc.

Notes to Income Statement

a. Includes salaries: Jon Jones $200,000, Billy Burt $50,000.

b. Depreciation for tax purposes $112,700.

c. $2,500 is allocable to the investments in stock. The remainder is related to Bizrate’s business.

d. $6,000 in fees were incurred in organizing Bizrate.

e. Includes $5,000 of premiums for term life insurance on Jon and Billy. Bizrate is the beneficiary of these policies. In addition, $4,300 of the health insurance premiums are attributable to coverage for Jon and his family, and $3,900 are attributable to coverage for Billy and his family.

f. Sold 500 shares of SBUX stock for $35,000 on December 1, 2018. The stock had been purchased by Jon on July 1, 2004 for $20,000 and was contributed by him on February 22, 2018, when it was worth $30,000. Also, on December 1, 2018 sold 100 shares of Grand View, Inc. for $2,000. The stock had been purchased on March 1, 2018 for $3,000. At no time did Bizrate own more than 1% of the outstanding stock of these corporations.

g. Sold a delivery truck on September 23, 2018 for $35,000. The Truck had originally been purchased on May 1, 2018 for $33,400. Depreciation taken for book purposes was $7,000. Depreciation taken for tax purposes was $9,350.

h. Bizrate owns less than 20% of the outstanding stock of each of these corporations.

Bizrate Electronics, Inc.

Balance Sheet

December 31, 2018

Assets
Cash 113,000
Accounts Receivable 300,000
Less Allowance for Bad Debts 29,000 271,000
Inventory 1,700,000
Tax Exempt Securities 17,000
Other Current Assets 40,000
Other Investments 85,000
Buildings and Depreciable Assets (net) 165,400
Land 70,000
Total Assets 2,461,400
Liabilities and Equity
Accounts Payable 375,000
Mortgages, Notes Payable in < 1 year 185,000
Other Current Liabilities 70,000
Mortgages, Notes Payable in > 1 year 1,190,000
Capital Stock 500,000
Retained Earnings 141,400
Total Liabilities and Equity 2,461,400

Bizrate Electronics, Inc.

Statement of Changes in Retained Earnings

For the Year Ended December 31, 2018

Beginning Balance 0
Income 381,400
Distributions (240,000)
Balance, December 31, 2018 141,400

Other Information

Addresses for the owners are:

Jon Jones, 3513 Jackson Street, Louisville, KY 40018

Billy Burt, 2532 Sugarbush, Louisville, KY 40018

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Taxation

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