John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners, respectively, of
Premium, Inc. (11-1111120), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303. Premium’s
S election was made on January 15, 2012, its date of incorporation. The following information was taken from the
company’s 2020 income statement.
Interest income $ 100,000
Gross sales receipts 2,410,000
Beginning inventory 9,607
Direct labor (203,102)
Direct materials purchased (278,143)
Direct other costs (249,356)
Ending inventory 3,467
Salaries and wages (442,103)
Officers’ salaries ($75,000 each to Parsons and Smith) (150,000)
Repairs (206,106)
Depreciation expense, tax and book (15,254)
Interest expense (35,222)
Rent expense (operating) (40,000)
Taxes (65,101)
Charitable contributions (cash) (20,000)
Advertising expenses (20,000)
Payroll penalties (15,000)
Other deductions (59,899)
Book income 704,574
A comparative balance sheet appears below.
January 1, 2020 December 31, 2020
Cash $ 47,840 $ ?
Accounts receivable 93,100 123,104
Inventories 9,607 3,467
Prepaid expenses 8,333 17,582
Building and equipment 138,203 185,348
Accumulated depreciation (84,235) (?)
Land 2,000 2,000
Total assets $214,848 $844,422
Accounts payable $ 42,500 $ 72,300
Notes payable (less than 1 year) 4,500 2,100
Notes payable (more than 1 year) 26,700 24,300
Capital stock 30,000 30,000
Instructions
Retained earnings $111,148 ?
Total liabilities and capital $214,848 $844,422
Premium’s accounting firm provides the following additional information.
Distributions to shareholders (not reported on Form 1099-DIV and
made based on percentage of ownership): $100,000
Beginning balance, Accumulated adjustments account: 111,148
Ordinary business income for QBI: 639,574
W-2 wages for QBI: 795,205
Required:
Prepare Premium’s Form 1120S, Additional Information – Continuation Statement, and Schedule K-1s for John
Parsons and George Smith, 5607 20th Street, Cut and Shoot, TX 77303.
If an amount box does not require an entry or the answer is zero, enter “0”.
Enter all amounts as positive numbers, unless otherwise instructed.
If required, round amounts to the nearest dollar.
Make realistic assumptions about any missing data.