Question

Corporate tax return problem-Custom Designs, Inc. (CDI)

Tammy Adams and Fernando Hernandez each own 50% of Custom Designs, Inc. (CDI). On May 6, 2004, they formed CDI to provide architectural services. CDI’s information is summarized as follows:

• CDI’ s business address is 2120 Adobe Drive, Las Cruces, NM 88011; its employer identification number is 11-1111111, and the principal business activity code is 541310.

CDI’s financial statement for 2019 is show below:

Income
Professional fees	739,000
Long-term capital gain	5,000
Short-term capital gain	8,000
Long-term capital loss	6,000
Dividends distributed from Gary Inc. (CDI ownership in Gary is 17%)	20,000
Interest income State bonds            $18,000 Corporate bonds     24,000	42,000
Life insurance proceeds on the death of a key employee	500,000
Total income	1,308,000

Expenses
Salaries-officers    Tammy Adams:                         190,000    Fernando Hernandez:              190,000	380,000
Salaries -clerical	61,000
Taxes (state, local , and payroll)	55,620
Advertising	17,650
Rental expenses	9,270
Repairs and maintenance	16,340
Interest expenses:   On loan to purchase state bonds On corporate bonds	10,500 25,000
Depreciation* (depreciation for tax purpose is $42,000)	35,000
Business Meals	9,800
Total expenses	620,180
Net income before taxes	687,820
Tax	144,442
Income after tax	543,378

During 2019, CDI made estimated tax payment of $10,000 each quarter to the IRS. Prepare a Form 1120 page 1 and schedule M-1 on page 6 for CDI for tax year 2019 (Check your figure: Taxable income: $168220)

Also: report dividend income of $24000 on line 4 and do not forget report DRD of $10000 on line 29b

Answer 1

PART - A

Form 1120 -

Head as per Form 1120 Amount

Gross Reeceipt / Profit - 7,39,000

Divident - 20,000

Interest - 42,000

Capital Gain (Net) - 7,000

Other Income - 5,00,000

Total Income   - 13,08,000

Salaries & wages - 4,41,000

Repair & Maintenence - 16,340

Rents - 9,270

Taxes & License - 55,620

Interest - 35,500

Depletion - 42,000

Advertising - 17,650

Employee benefit program - 9,800

Tota Deductions - 6,27,180

Taxable Income - 6,80,820

Total Tax - 1,44,442

Total Payment - 40,000

Amount owed - 1,04,442

PART - B

Schedule M-1 : Reconciliation

Net income as per books - 5,43,378

Federal Income Tax as per books   - 1,44,442

Add: Depreciation as per books - 35,000

Less: Depreciation as per income tax - (42,000)

Income as per Income Tax - 6,80,820