Wolf P. is an eclectic family pizza & pasta restaurant that is wholly owned by John and Allie Ryan opened in tax year 2017, and now in its second year of operation. The business is organized as a C-Corporation under the name Wolf P. Inc. Their EIN is 904713872 The Ryan’s files the tax information for the operations of the business on Form 1120. Wolf P. uses the accrual method of accounting. The restaurant has been very successful because of its reasonable pricing and family-friendly environment. The restaurant is also unique as patrons are given the dough and food items and can prepare their own pizzas that are then taken back for baking by the service staff. The do-it-yourself food prep is optional, but a huge hit with families and contributes to the success of the establishment.
I. Revenues-Form 1120
Wolf P.’s total cash sales in 2014 $805,398 and its total credit card charges through December 29, 2018 were $1,554,874. In addition, Wolf P. also hosted a party on December 31, 2018. They could have picked up the check totaling $10,000 at 7PM on December 31 but they did not pick up the check until 2:30AM on January 1.
IV. Expenses
a. Employee Salaries & Benefits
John works full time managing Wolf P. , and he pays himself with a form W2. The restaurant had 9 full time employees. Total wages paid for the year was $734,486. Total benefits were 140,000. Included in this figure are wages and benefits for the food preparation staff for 3 employees, which totaled 75,437 for wages and 15,000 for benefits.
John has health insurance coverage for himself and his nine employees, at a cost of $100,000.
Vehicle
The business provides John with a Lexus, purchased in 2018. John uses the actual method to compute expenses. The vehicle is only used for business purposes. Total gas and maintenance receipts totaled $2,534. In addition, the payment of the vehicle was $1,841 per month at 0% APR.
b. Food and Supplies Inventory
Wolf P. gets all its food and food supplies from the same supplier. It placed and used $496,541 in food and food supplies for the year. All such purchases were made on account and payable within 15 days and Wolf P.’s outstanding and unpaid invoices on December 31st totaled $0. Due to an end of the year party, they depleted their entire inventory.
Other Expenses
Wolf P. paid a $1,500 fine from the health department for three health code violations. They properly recorded this on their books.
Wolf P. also bribed the health inspector for $33,500 to ignore 12 critical violations. They recorded this on their books in the “miscellaneous” account.
Wolf P. also paid out the following in 2018, and properly recorded this per books:
Merchant Account Fees $48,425
General liability and property insurance $77,000
Electric & Gas Bills $19,135
Legal & Accounting Fees $5,700
Advertisement Fees $13,250
Charitable Contributions $100,000
Entertainment Expenses $10,000
Meals $50,000
c. Estimated Tax Payments
John made estimated tax payments every quarter of the tax year. He paid $40,000 per quarter; totaling $120,000 for the tax year. Please do not calculate any underpayment penalties.
V. Assets Acquired in 2017 (This section may be helpful to fill out by hand first)
Wolf P. purchased the following assets, all placed in service on 01/01/2017. Wolf P, Inc. has elected out of Bonus Depreciation.
Asset Cost Property Class Section 179 taken MACRS 2017 MACRS 2018
New Kitchen Equipment $350,000
Furniture $35,000
Computers and software $12,000
Food Truck (not luxury) $24,000
VI. Assets Acquired in 2018 (This section may be helpful to fill out by hand first)
Wolf P. purchased the following assets, all placed in service on 6/30/2018. TRPP, Inc. has elected out of Bonus Depreciation.
Asset Cost Property Class Section 179 taken MACRS 2018
New Dishwasher $45,000
2018 Lexus. $100,000
VII. Income statement prepared for book purposes
Income Statement
for the year ended Dec 31, 2018
Revenues:
Cash and Check Sales $815,398.00
Credit Card Sales 1,554,874.00
Less: COGS (496,541.00)
Municipal Bond Interest 15,000.00
Total Revenues 1,888,731.00
Total Revenues 1,888,731.00
Less: Total Expenses before taxes 1,385,530.00
Net Income before taxes 503,201.00
Less: Income tax expense 117,222.21
Net Income 385,978.79
- Attachment 1
- Attachment 2
Form1120U.S. Corporation Income Tax ReturnOMB No. 1545-0123Department of the TreasuryFor calendar year 2018 or tax year beginning, 2018, ending20Internal Revenue ServiceGo to www.irs.gov/Form 1 120 for instructions and the latest information.2018A Check ifNameB Employer identification numberla Consolidated return(attach Form 851)b Life/nonlife consoli-TYPEet, and room or suite no. If a P.O. box, see instructionsDate incorporateddated return .OR2 Personal holding coPRINT(attach Sch. PH) .City or town, state or province, country, and ZIP or foreign postal codeD Total assets (see instructions)3Personal service corpsee instructions)S4Schedule M-3 attached EE Check if: (1) Initial return2) Final return3)Name change4) Address changelaGross receipts or sales1aaReturns and allowances .1bBalance. Subtract line 1b from line 1aCost of goods sold (attach Form 1125-A)2Gross profit. Subtract line 2 from line 1c .Dividends and inclusions (Schedule C, line 23, column (a)) .IncomeLOInterestGross rentsGross royaltiesCOCapital gain net income (attach Schedule D (Form 1120)) .CONet gain or (loss) from Form 4797, Part II, line 17 (attach Form 4797)10Other income (see instructions-attach statement)11Total income. Add lines 3 through 1012Compensation of officers (see instructions-attach Form 1125-E)13Salaries and wages (less employment credits)Repairs and maintenanceBad debtsRentsTaxes and licensesInterest (see instructions)Charitable contributions .Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562)Deductions (See instructions for limitations on deductions.)DepletionAdvertisingPension, profit-sharing, etc., plans&NN ?Employee benefit programsReserved for future use .Other deductions (attach statement)26Total deductions. Add lines 12 through 2627Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11.Net operating loss deduction (see instructions)29aSpecial deductions (Schedule C, line 24, column (c))29bAdd lines 29a and 29b29cTaxable income. Subtract line 29c from line 28. See instructions30Total tax (Schedule J, Part I, line 11) .312018 net 965 tax liability paid (Schedule J, Part II, line 12) .32Total payments, credits, and section 965 net tax liability (Schedule J, Part III, line 23) .3385 8 8 8 8 85Tax, Refundable Credits, andPaymentsEstimated tax penalty. See instructions. Check if Form 2220 is attached34Amount owed. If line 33 is smaller than the total of lines 31, 32, and 34, enter amount owed35Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid36Enter amount from line 36 you want: Credited to 2019 estimated taxRefunded37Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correctSignand complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.May the IRS discuss this returnHerewith the preparer shown below?Signature of officerTitleSee instructions.DateYes NoPaidPrint/Type preparer’s namePreparer’s signatureDateCheck ifPTINPreparerself-employedUse OnlyFirm’s nameFirm’s EIN
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