ax Return Problem 1 (TRP 1)
Corporate Tax Return Information
The Snap-It-Open Corporation incorporated and began operations on January 15, 2002. Its address is 3701 Commerce Drive, Baltimore, MD 23239. Its employer identification number is 69-7414447. It elects to file its initial tax return for 2002 as a calendar-year corporation and uses the accrual method of accounting. It elects the LIFO method of inventory valuation.
Jason Sprull (SSN 333-33-3333) and Martin Winsock (SSN ...view middle of the document...
The company was formed to assemble and market a unique, compact, snap-open umbrella and its business activity code is 339900. These umbrellas are sold to a variety of organizations as premiums. The company purchases the umbrella frames and several types of waterproof fabric for the umbrella material and covers from various manufacturers. It prints the organizations’ advertising logos or other designs on the umbrella material and covers and then assembles these on the umbrella frames for delivery to the customer.
On January 16, the company began using two machines for printing and cutting the fabric for the umbrellas that they had purchased for $250,000 each and two used umbrella assembly machines purchased for $200,000 each. The company obtained a bank loan of $750,000 secured by the machines. Jason and Martin were required to personally guarantee this loan that has an 8 percent annual interest rate on the unpaid balance. The first principle payment of $100,000 is not due until January 16, 2003.
During the year, the company purchased $150,000 of fabric and $210,000 of umbrella frames. It returned one order of frames valued at $5,000 because of a defect in the snap-open mechanism and received a cash refund for that amount.
Both Jason and Martin worked full-time in the business. Jason was the salesperson for the company...