analyze zeus, inc cooperate tax return

analyze zeus, inc cooperate tax return

Week 5 Assignment – Analyzing a Corporate Tax Return

Overview
You are a senior tax accountant in the firm, Ernest & Rainhouse. Joe, a new junior accountant, has just prepared his first corporate tax return for Zeus, Inc. The electronic filing system has rejected the Zeus, Inc.’s Form 1120: U.S. Corporation Income Tax Return 2020 [PDF] due to errors and omissions. Joe is seeking your help in determining his mistakes and in answering some corporate tax questions he is unsure about. You are to read the scenario below and then follow the instructions.
Scenario
Zeus, Inc. is organized as a corporation and is taxed as a C corporation with a calendar year end. Zeus, Inc. owns and operates an amusement park in Los Angeles, California. Zeus, Inc.’s address, employer identification number (EIN), and date of incorporation are as follows:

EIN: 56-1234567.
Date incorporated: July 1, 2010.

Zeus, Inc. is owned by 77 shareholders. No person or entity owns directly 20% or more, or owns, directly or indirectly, more than 50% of the voting stock of Zeus, Inc. No one is from outside of the United States.
Zeus, Inc. uses the accrual method of accounting. Zeus, Inc. is not audited by a CPA firm. It does, however, use GAAP-based financial statements and has never had a restatement of its income statement.
Zeus, Inc. reported the following information for 2020:

Zeus, Inc. made payments that required it to file federal form(s) 1099. The 1099s were filed timely.
Zeus, Inc. average annual gross receipts for the prior three years are under $26,000,000.
Zeus, Inc. elects to file a complete Schedule M-3 even if only M-1, or a partial M-3, is required.

Additional Information Used in the Preparation of Zeus, Inc. Financial Statements:

On August 1, 2020, Zeus, Inc. was notified by its legal counsel that Zeus, Inc. was being sued by a former employee regarding her termination of employment from Zeus, Inc. On December 21, 2020, a legal settlement was reached with this terminated employee. As part of the settlement, Zeus agreed to pay the employee a settlement amount of $190,000 on January 10, 2021. Zeus, Inc. accrued this expense on its 2020 financial statements.
Zeus, Inc. owns 12% of Fun Fair of Russia, a Russian corporation operating a theme park on the outskirts of Moscow. Fun Fair of Russia remitted dividends to Zeus, Inc. of $14,000. Zeus, Inc. also received $300 in dividends from holding marketable securities (all less than 20% owned by Zeus, Inc.).
From inception until this year, Zip Coaster has been Zeus’s main attraction, but it aged and lost appeal. Zeus, Inc. purchased a new attraction known as the Swirlwind. The Swirlwind was installed and placed in operation on March 1, 2020, at a cost of $6,000,000 to acquire and place into service.
Zeus, Inc. rents its amusement equipment from vendors. As of December 31, 2019, and December 31, 2020, respectively, Zeus, Inc. has prepaid vendors for equipment rental of $30,000 for January 2020 and $35,000 for January 2021.
On December 26, 2020, Zeus, Inc. prepaid a contractor $17,500 to repair three pieces of maintenance shop equipment. Zeus, Inc. fully expects that the contractor will have completed the project by January 31, 2020.
As of December 31, 2019, and 2020, respectively, Zeus, Inc. had vacation accruals on its books of $29,000 and $35,000.
On December 2, 2020, Zeus, Inc. held an advertising give-away of $100,000.
Zeus, Inc. rents part of their unused land. Zeus, Inc. received a check for $50,000 on December 27, 2020, for 6-months rental beginning January 1, 2021. The lease contains a clause that the rent is nonrefundable to the renter under any circumstances.
During the year, Zeus, Inc. made the following estimated tax payments:

Estimated Tax Payments

Date

Federal Estimated Tax Payment

California Estimated Tax Payment

4/15/2020

$72,500

$15,000

6/15/2020

$72,500

$15,000

9/15/2020

$72,500

$15,000

12/15/2020

$72,500

$15,000

On December 1, 2020, Zeus Inc. paid $400,000 dividends to all common stockholders.

Additional Information Used in the Preparation of Zeus, Inc. Corporate Tax Return:

Zeus, Inc. maintains a portfolio of tax-exempt securities and publicly traded stocks as a measure to provide immediate liquidity if needed. All of these securities originate from less than 20% owned domestic corporations. Zeus, Inc. paid an attorney $10,000 in obtaining the tax-exempt securities.
Zeus’s regular tax depreciation for the year is correctly calculated as $1,112,499 (from previous year’s purchases) before considering the 2020 addition of the Swirlwind. Because of the Swirlwind’s modular design, it is considered personal property. (Not real property.)
Near the end of the year, Zeus, Inc. switched its property and casualty insurance company. As a result, the plan year for its insurance contract was altered. On December 31, 2020, Zeus, Inc. prepaid insurance premiums of $25,000 representing coverage through February 15, 2021, as a condition of being accepted by the new company. Zeus, Inc. did not expense any of the prepayments for financial accounting purposes.

Zeus, Inc.’s officer information for the year is as follows: (Compensation amounts included in total wages on the income statement for all employees.)

Officer Information

Name

Social Security #

% of Time Devoted to Business

% of Stock Owned

Amount of Compensation

Margo Harrington

123-45-6789

100%

.05%

$235,000

Dean Williams

987-65-4321

100%

.03%

$195,000

Dennis Johns

456-78-9321

100%

0%

$165,000

Jamie Conway

321-45-6978

100%

0%

$150,000

All the accrued wages and bonus amounts on the financial statements as of December 31, 2019, were paid on February 28, 2020.
The winner of the advertising give-away of $100,000 was presented the check on January 15, 2021.
As of March 15, 2020, and 2021, respectively Zeus, Inc. had paid $5,000 and $8,000 of the vacation accrued amounts.

Zeus, Inc. Financial Statements:

Balance Sheet

Zeus, Inc. Balance Sheet

As of Dec. 31, 2019

As of Dec. 31, 2020

Assets:

 
 

Cash

165,000

119,000

Accounts Receivable

128,000

75,000

Less: Allowance for Doubtful Accounts

(43,000)

(49,000)

Inventory

422,000

390,000

Tax-exempt Securities

150,000

150,000

Publicly Traded Stocks

200,000

200,000

Fixed Assets

24,000,000

28,000,000

Less: Accumulated Depreciation

(13,542,000)

(12,892,000)

Prepaid Insurance

 

25,000

Prepaid Rent

30,000

35,000

Prepaid Contractors

 

17,500

Other Assets

150,000

250,000

Total Assets

11,660,000

16,320,500

 
 
 

Liabilities & Stockholders’ Equity:

 
 

Accounts Payable

48,000

62,000

Accrued Wages

123,000

118,000

Accrued Bonuses

68,500

39,000

Accrued Vacation

29,000

35,000

Legal Settlement Accrual

190,000

Prize Accrual

100,000

Unearned Rental Revenue

50,000

Notes Payable – Short Term

1,540,000

1,084,000

Notes Payable – Long Term

7,112,000

11,728,000

 
 
 

Capital Stock

100,000

100,000

Additional Paid-in Capital

2,000,000

2,000,000

Retained Earnings

639,500

814,500

Total Liabilities & Stockholders’ Equity

11,660,000

16,320,500

 

Income Statement

Zeus, Inc. Income Statement

 
 
 

For the Year Ended December 31, 2020

 
 
 

 
 
 
 

Income:

 
 
 

Sales

 
 

26,523,275

Less: Sales Returns & Allowances

 
 

(113,500)

 

Net Sales

 

26,409,775

Cost of Goods Sold

 
 

(2,052,500)

Gross Margin

 
 

24,357,275

Other Income:

 
 
 

 

Dividend Income

14,300

 

 

Interest Income

2,650

 

 

Municipal Bond Interest Income

2,300

19,250

Total Income:

 
 

24,376,525

 
 
 
 

Expenses:

 
 
 

Employee Salaries

 
 

13,905,600

Repairs & Maintenance

 
 

492,350

Bad Debts

 
 

58,000

Rent

 
 

1,543,000

Payroll Taxes

 
 

1,112,400

Licensing Fees

 
 

10,750

Property Taxes

 
 

277,000

Interest Expense

 
 

781,000

Depreciation

 
 

1,350,000

Office Supplies

 
 

33,950

Employee Training

 
 

53,750

Safety Expenses

 
 

31,000

Political Contribution

 
 

2,500

CA Safety Commission Fine

 
 

5,000

Advertising

 
 

290,500

Admission Supplies

 
 

143,250

Attorney Fees

 
 

10,000

Meals & Entertainment

 
 

8,500

Travel

 
 

13,550

Insurance

 
 

215,000

Legal Settlement

 
 

190,000

Prize Contest Expense

 
 

100,000

Fuel

 
 

158,675

Utilities

 
 

2,530,500

Telephone

 
 

135,250

 

Total Expenses Before Taxes

 

23,451,525

 
 
 
 

 

CA Income Tax Expense

60,000

 

 

Federal Tax Expense

290,000

 

 

Total Income Taxes

 

350,000

Net Income:

 
 

575,000

Instructions
Write 3-5 page paper in which you do the following:

Identify at least three errors or omissions on the Zeus, Inc.’s Form 1120: U.S. Corporation Income Tax Return 2020 [PDF], justifying selections with IRS codes, IRS regulations, court cases, or FASB statements.
Explain the criteria that requires the use of M-3 and describe how it is more beneficial to the financial statement user.
Explain at least two IRS approved methods available to Zeus Inc. to make estimated tax payments, explaining and justifying the preferred method.
Explain the relationship of a corporation’s tax year and their financial reporting year, explaining at least two complications. Provide how to mitigate the two complications that might arise in preparing Zeus Inc’s income tax provision for the financial statements.
Use at least two quality sources to support your writing. Choose sources that are credible, relevant, and appropriate. Cite each source listed on your source page at least one time within your assignment.
Writing contains accurate grammar, mechanics, and spelling in accordance with SWS style.

This course requires the use of Strayer Writing Standards. For assistance and information, please refer to the Strayer Writing Standards link in the left-hand menu of your course. Check with your professor for any additional instructions.
The specific course learning outcomes associated with this assignment:

Analyze a corporate tax return to collect the required information for the preparation of a corporate tax return.

 
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