Tax Return Problem 8: C corporation
Instructions:
Please complete the required federal corporation income tax return forms for Fun Fair of Ventura, Inc.
for the 2012 tax year, unless instructed otherwise, based upon the facts presented below. Also, if
required information is missing, use reasonable assumptions to fill in the gaps.
Fun Fair of Ventura, Inc. (FF) is organized as a corporation and is taxed as a “C” corporation with a
calendar year-end. FF owns and operates an amusement park in Oxnard, California. Oxnard’s weather
allows FF to operate year-round. FF’s address, employer identification number (EIN), and date of
incorporation are as follows:
Fun Fair of Ventura, Inc.
50 Boardwalk
Oxnard, California 93030
EIN- 36-4385943
Date Incorporated- July 23, 1997
FF has been at the same address and has not changed its same since inception.
FF has only common shares issued (no preferred stock).
FF is owned by 86 shareholders. The majority owner of FF is large private equity firm based in San Jose,
California called Amusement Ventures, LLC (AV). AV’s address, employer identification, and other
information are as follows:
Amusement Ventures, LLC
675 Shady Wood Boulevard
San Jose, California 95101
EIN- 54-8293213
AV is taxed as a partnership for federal tax purposes. AV is organized in California. It owns 30%
of the voting stock of FF directly. No other person or entity owns directly or indirectly owns
more than 5% of the voting stock of FF.
FF uses the accrual method of accounting. FF is not a subsidiary nor is it in an affiliated group with any
other entity. FF is not audited by a CPA firm. It does, however, use GAAP-based financial statements.
FF has never had a restatement of its income statement.
In addition, FF reported the following information for the current year:
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FF did not pay dividends in excess of its current and accumulated earnings and profits.
None of the stock of FF is owned by non U.S. persons
FF has never issued publicly offered debt instruments.
FF is not required to file a Form UTP
FF made payments that required it to file federal Form(s) 1099. These Forms 1099 were filed
timely by FF.
During the year, none of the shareholders of FF changed.
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FF has never disposed of more than 65% (by value) of its assets in a taxable, non-taxable, or tax
deferred transaction.
FF did not receive any assets in a Section 351 transfer during the year.
All of the questions on Schedule B, Form 1120 should be answered with “no” for the year.
Additional information:
On August 1, FF was notified by its legal counsel that FF was being sued by a former employee regarding
her termination of employment from FF. As of December 31, CY (current year), no legal settlement had
been reached. However, legal counsel has advised FF that the settlement amount of $190,000 is
probable (although the number could be slightly more or less) and the law firm believes a confidential
settlement will be executed by both parties sometime in February of next year. FF accrued this expense
on its financial statements.
FF maintains a portfolio of tax-exempt securities (none of which are private activity bonds) and publiclytraded stocks as a measure to provide immediate liquidity if needed (none of these investments is debt
financed). All of these securities originate from less than 20% owned domestic corporations.
During the year, FF upgraded its main attraction. From inception until this year the Rapid Coaster had
been the main attraction. However due to safety, crowd appeal, and other factors, FF disposed of the
Rapid Coaster on March 1 and purchased a new attraction known as the Vomitnator. The Rapid Coaster
cost $2,000,000 and was put in service on September 1, 2001. The Rapid Coaster was fully depreciated
for book, regular tax, and AMT tax depreciation purposes.
The Vomitnator was installed and rendered operational on March 1. The Vomitnator cost $6,000,000.
FF’s regular tax depreciation for the year is correctly calculated as $1,112,499 before considering the
2012 addition of the Vomitnator. FF’s AMT depreciation for the year is correctly calculated as $744,977
before considering the 2012 addition of the Vomitnator. FF does not want to claim any current year
bonus depreciation. Further, FF wants to depreciate the Vomitnator using the general depreciation
method system “GDS” for regular tax purposes.
FF officer information for the year is as follows (compensation amounts included in total wages on the
income statement for all employees):
Name
Marissa Hunt
Dakon Williams
Deon Johnson
Jennifer Conley
Social security
number
435-54-2342
243-98-3242
194-23-7435
623-53-3920
Percent of time
devoted to
business
100%
100%
100%
100%
Percent of stock
owned
Amount of
compensation
.05%
.03%
0%
0%
$235,000
$195,000
$165,000
$150,000
Near the end of the year, FF switched its property and casualty insurance company. As a result, the plan
year for its insurance contract was altered. On December 31, 2012 FF prepaid insurance premiums of
$25,000 representing coverage through February 15 of 2013 as a condition of being accepted by the
new company. FF did not expense any of the prepayment for financial accounting purposes
FF rents from vendors several pieces of equipment to use in its business. As of December 31, 2011 and
December 31, 2012, respectively, FF had prepaid vendors for equipment rental of $30,000 for January of
the current year and $35,000 for January of next year, respectively.
On December 26, 2012 FF prepaid a contractor $17,500 to repair several pieces of maintenance shop
equipment in January of 2013. FF fully expects that the contractor will have completed the project by
January 31 of next year.
All of the accrued wages and bonus amounts on the financial statements as of December 31, 2012 were
paid on February 28, 2013.
As of December 31, 2011 and 2012, respectively, FF had vacation accruals on its books of $29,000 and
$35,000. As of March 15, 2012 and 2013, respectively, FF had paid $5,000 and $8,000 of those accrued
amounts.
On December 2, 2012, the millionth customer entered the park. To recognize the accomplishment and
to promote the amusement park through print and radio media advertisements, FF held a give-away
contest wherein the lucky customer deemed to be the millionth customer would be given $100,000.
The check was presented to the lucky winner on January 15, 2013.
The land on which FF resides is owned by the county. FF has a very favorable lease with the county that
allows FF the ability to sublease any portion of the ground to another tenant. The board of directors of
FF made the decision in the fall of the 2012 to seek out a tenant for unimproved land that would not be
utilized in any potential expansion plans. FF identified the potential renter and entered into a contract
with the renter on December 1, 2012. The rent period is to begin on January 1, 2013; however, as part
of the contract, the renter was required to pay a full six-month rental amount ($50,000) to FF by
December 31, 2012. FF received a check of $50,000 on December 27, 2012 from the renter. This rental
payment is not refundable to the renter under any circumstances.
FF maintains an inventory of several items that it uses in its amusement park. Inventory is valued at
cost. FF has never has never changed it inventory method. FF uses specific identification for its
inventory. FF has never written down any subnormal goods. The rules of Section 263A (Unicap) apply
to FF. The Unicap calculated costs related to ending inventory at December 31, 2011 and 2012
respectively were $15,000 and $19,000.
On December 1, 2012, FF paid a dividend to all common stockholders of $400,000.
During the current year, FF made federal estimated income tax payments of $72,500 each on April 15,
June 15, September 15 and December 15 of the current year ($290,000 in total). If FF has overpaid its
current year estimated taxes, FF would like to apply the excess to its estimated tax payments for next
year. FF is NOT a “large corporation.” FF’s 2011 tax liability was $200,000.
FF made California state estimated income tax payments of $15,000 each on April 15, June 15,
September 15 and December 15 of 2012 ($60,000 in total).
FF does not have a minimum tax credit carryforward from 2011.
Financial Statements (kept on a GAAP basis):
FUN FAIR OF VENTURA, INC.
Balance Sheet
Assets:
12/31/11
12/31/12
Cash
Accounts Receivable
Less: Allowance for Bad Debts
Inventory
Tax-exempt Securities
Publicly Traded Stocks
Fixed Assets
Less: Acc. Depreciation
Prepaid Insurance
Prepaid Rent
Prepaid Installation Contract
Other Assets
$
165,000
128,000
(43,000)
422,000
150,000
200,000
24,000,000
(13,542,000)
0
30,000
0
150,000
$ 119,000
75,000
(49,000)
390,000
150,000
200,000
28,000,000
(12,892,000)
25,000
35,000
17,500
250,000
Total Assets:
$11,660,000
$16,320,500
Liabilities and Capital:
Accounts Payable
Accrued Wages
Accrued Bonuses
Accrued Vacation
Legal Settlement Accrual
Prize Accrual
Unearned Rental Income
Note Payable-First Bank of CA (Credit Line)
Note Payable-Equipment Leasing, Inc.
48,000
123,000
68,500
29,000
0
0
0
1,540,000
7,112,000
62,000
118,000
39,000
35,000
190,000
100,000
50,000
1, 084,000
11,728,000
Capital Stock
Additional paid-in Capital
Retained Earnings-Unappropriated
100,000
2,000,000
639,500
100,000
2,000,000
814,500
Total Liabilities and Capital:
$11,660,000
$16,320,500
Income Statement for the period ending December 31, 2012
Item
Amount
Income:
Gross Sales
Less: Returns
Net Sales
Cost of Goods Sold
Dividend Income
Interest Income
Municipal Bond Interest Income
Total Income:
$26,523,275
(113,500)
26,409,775
(2,052,500)
4,300
2,650
2,300
24,366,525
Expenses:
Employee Salaries
Repairs and Maintenance
Bad Debts
Rent
Payroll Taxes
Licensing Fees
Property Taxes
Interest Expense
Depreciation
Office Supplies
Employee Training
Safety Expenses
Political Contribution
CA Safety Commission Fine
Advertising
Admission Supplies
Meals and Entertainment
Travel
Insurance
Legal Settlement
Prize Contest Expense
Fuel
Utilities
Telephone
13,905,600
492,350
58,000
1,543,000
1,112,400
10,750
277,000
781,000
1,350,000
33,950
53,750
31,000
2,500
5,000
290,500
143,250
8,500
13,550
215,000
190,000
100,000
158,675
2,530,500
135,250
Total Expenses before taxes:
$23,441,525
CA state income tax expense
Federal tax expense
60,000
290,000
Net Income:
$ 575,000