Tax Return: S Corporation Instructions: Please complete the 2018 tax return for Modern Day Clothing, Inc., based upon the facts presented below and a K-1 for Jennifer Lyons. If required information is miss in the gaps. Ignore any Alternative Minimum Tax (AMT) calculations or reporting. Go to print out your required forms. Remember if you have new assets for the year you must i 4562 ing, use reasonable assumptions to fill www.irs.gov to nclude a Form Modern Day Clothing, Inc. (MD) is organized as a corporation in the state of North Carolina and is taxed as an "S" corporation with a calendar-year end. MD operates four small boutique clothing outlet stores (family clothing stores) in the North Carolina cities of Charlotte, Durham, Raleigh, and Winston-Salem. MD's address, employer identification number, date of incorporation, and effective date of its S corporation election are as follows Modern Day Clothing, Inc. 1515 North Lincoln Highway Charlotte, North Carolina 28201 EIN: 14-2953556 Date Incorporated- February 2, 2000 Effective date of the S election was January 1, 2018. MD has been at the same address since inception MD has only common shares issued. There are currently 10,000 shares of MD common stock outstanding and issued. There were no stock transfers during the current tax year. MD is owned by the following unrelated four shareholders: Jennifer Lyons 85 Shady Elm Charlotte, North Carolina, 28201 SSN 524-31-3493 Number of common shares owned 4,300 Chief Executive Officer 2017 W-2 wages $112,000 Robert Newberry RD Route 843 Rural Hall, North Carolina 27045 SSN 482-26-5241 Number of common shares owned 2,300 Chief Financial Officer 2017 W-2 wages $90,000 Lamar Taylor 35 S. Main Street Mt. Airy, North Carolina 27030 SSN 545-16-4239 Number of common shares owned 2,200 Chief Operations Officer 2017 W-2 wages $80,000 Lacrecia Williams 9851 Old Colonial Highway Charlotte, North Carolina, 28201 SSN 429-82-9384 Number of common shares owned 1,200 Not an officer of the company MD reported the following information for the year: MD uses the accrual method of accounting MD is not a subsidiary nor is it in an affiliated group with any other enti does not own directly 20%, or, directly and indirectly, 20% or more of any other entity (including corporations or partnerships) MD has never issued any restrictive stock MD has never been required to file a Form 8918 MD has never issued any publicly traded debt MD was taxed as a C corporation from MD has no built in gains MD had $500,000 of Accumulated Earnings and Profits as of 12/31/2018. MD had an Accumulated Adjustments Account balance at 12/31/2018 of $125,000 MD had an Other Adjustments account balance at 12/31/2018 of $7,000 MD did not have any non-shareholder debt that was cancelled or was forgiven nor had the inception through the effective date of the S election . terms modified so as to reduce the principal amount of the debt during the tax year MD has never made nor caused to be made a qualified subchapter S subsidiary election (Qsub) MD has never caused a Qsub election to be revoked or terminated MD made payments in the current year that required the filing of Forms 1099. All of those Forms 1099 were filed timely. Additional information None of the expenses incurred by MD during the year relate to the production or carrying of the tax- exempt securities held in portfolio. The tax-exempt securities are maintained in a separate brokerage account distinct from other holdings. MD maintains its inventory on the cost method. MD uses specific identification for its inventory and h never changed its inventory method. MD has never written down any subnormal goods. The rules of Section 263A (UNICAP) do not apply to MD MD leases all of its real property On December 1, 2018, MD made a distribution to all common stockholders of $85 per common share On July 1, 2018, MD purchased $640,000 of new equipment (5-year MACRS property) that it used to expand its Charlotte store. Not including the $640,000 of new additions during the year, MD's calculated regular and AMT tax depreciation for the current year is $275,000. MD desires to increase its current year cost recovery deductions relating to the equipment additions by taking bonus depreciation MD did not dispose of any assets during the year. MD maintains a life insurance policy on the life of the CEO, Jennifer Lyons. MD is the beneficiary of that policy. During the current year, MD gave $32,000 in cash to the Red Cross to assist with hurricane disaster clean-up in the North Carolina area. There were no changes in stock ownership during the year. The three officers in the company devoted 100% of their time to the company. Financial Statements (kept on a GAAP basis): Modern Day Clothing, Inc. Balance Sheet Assets: 12/31/2018 12/31/2017 Cash $-317250 $ 340,000 205,000 63,000 (13,000) 2,908,000 100,000 200,000 4,010,000 (2,875,000) 250,000 165,000 Accounts Receivable-Credit Cards Accounts Receivable-Trade Less: Allowance for Bad Debts Inventory Tax-exempt Securities U.S. Treasury Bonds Fixed Assets Less: Acc. Depreciation Land-Unimproved (tax and GAAP basis) 232,000 58,000 (11,500) 3,010,000 100,000 200,000 4,650,000 (3,055,000) 250,000 Prepaid Rent 168,000 Total Assets: $5,353,000 $5,284,250 Liabilities and Shareholders' Equity: Accounts Payable Accrued Employee Wages Accrued Officer Bonuses Accrued Employee Vacation Note Payable-First Bank of NC (Credit Line) Note Payable-First Bank of Charlotte 99,000 27,000 110,000 19,000 536,000 3,655,000 93,000 31,000 145,000 21,000 812,000 3,139,750 Capital Stock Additional paid-in Capital 1,000 1,000 99,000 99,000 Retained Earnings 807,000 942500 Total Liabilities and Shareholders' Equity $5,353,000 $5,284250 Income Statement for the year ending December 31, 2018 Amount Item Income $8,936,500 (354,000) Gross Sales Less: Returns 8,582,500 Net Sales (4,910,500) Cost of Goods Sold 3,672,000 Gross Profit 3,750 6,000 2,650 Interest Income-Bank Interest Income-U.S. Gov't Municipal Bond Interest Income 3,684,400 Total Income: Expenses 317,000 437,000 12,600 22,000 765,000 84,500 10,750 12,500 175,500 180,000 5,300 13,750 Officer Salaries Employee Salaries Repairs and Maintenance Bad Debts Rent Payroll Taxes Licensing Fees Property Taxes Interest Expense Depreciation Office Supplies Employee Training Key Man Life Insurance Advertising Employee Benefit Programs Meals and Entertainment Travel Charitable Contribution Insurance Utilities 12,000 58,500 133,000 3,750 8,500 32,000 18,000 243,000 142,000 Telephone Total Expenses: Net Income (loss): $2,686,650 $997,750 Tax Return: S Corporation Instructions: Please complete the 2018 tax return for Modern Day Clothing, Inc., based upon the facts presented below and a K-1 for Jennifer Lyons. If required information is miss in the gaps. Ignore any Alternative Minimum Tax (AMT) calculations or reporting. Go to print out your required forms. Remember if you have new assets for the year you must i 4562 ing, use reasonable assumptions to fill www.irs.gov to nclude a Form Modern Day Clothing, Inc. (MD) is organized as a corporation in the state of North Carolina and is taxed as an "S" corporation with a calendar-year end. MD operates four small boutique clothing outlet stores (family clothing stores) in the North Carolina cities of Charlotte, Durham, Raleigh, and Winston-Salem. MD's address, employer identification number, date of incorporation, and effective date of its S corporation election are as follows Modern Day Clothing, Inc. 1515 North Lincoln Highway Charlotte, North Carolina 28201 EIN: 14-2953556 Date Incorporated- February 2, 2000 Effective date of the S election was January 1, 2018. MD has been at the same address since inception MD has only common shares issued. There are currently 10,000 shares of MD common stock outstanding and issued. There were no stock transfers during the current tax year. MD is owned by the following unrelated four shareholders: Jennifer Lyons 85 Shady Elm Charlotte, North Carolina, 28201 SSN 524-31-3493 Number of common shares owned 4,300 Chief Executive Officer 2017 W-2 wages $112,000 Robert Newberry RD Route 843 Rural Hall, North Carolina 27045 SSN 482-26-5241 Number of common shares owned 2,300 Chief Financial Officer 2017 W-2 wages $90,000 Lamar Taylor 35 S. Main Street Mt. Airy, North Carolina 27030 SSN 545-16-4239 Number of common shares owned 2,200 Chief Operations Officer 2017 W-2 wages $80,000 Lacrecia Williams 9851 Old Colonial Highway Charlotte, North Carolina, 28201 SSN 429-82-9384 Number of common shares owned 1,200 Not an officer of the company MD reported the following information for the year: MD uses the accrual method of accounting MD is not a subsidiary nor is it in an affiliated group with any other enti does not own directly 20%, or, directly and indirectly, 20% or more of any other entity (including corporations or partnerships) MD has never issued any restrictive stock MD has never been required to file a Form 8918 MD has never issued any publicly traded debt MD was taxed as a C corporation from MD has no built in gains MD had $500,000 of Accumulated Earnings and Profits as of 12/31/2018. MD had an Accumulated Adjustments Account balance at 12/31/2018 of $125,000 MD had an Other Adjustments account balance at 12/31/2018 of $7,000 MD did not have any non-shareholder debt that was cancelled or was forgiven nor had the inception through the effective date of the S election . terms modified so as to reduce the principal amount of the debt during the tax year MD has never made nor caused to be made a qualified subchapter S subsidiary election (Qsub) MD has never caused a Qsub election to be revoked or terminated MD made payments in the current year that required the filing of Forms 1099. All of those Forms 1099 were filed timely. Additional information None of the expenses incurred by MD during the year relate to the production or carrying of the tax- exempt securities held in portfolio. The tax-exempt securities are maintained in a separate brokerage account distinct from other holdings. MD maintains its inventory on the cost method. MD uses specific identification for its inventory and h never changed its inventory method. MD has never written down any subnormal goods. The rules of Section 263A (UNICAP) do not apply to MD MD leases all of its real property On December 1, 2018, MD made a distribution to all common stockholders of $85 per common share On July 1, 2018, MD purchased $640,000 of new equipment (5-year MACRS property) that it used to expand its Charlotte store. Not including the $640,000 of new additions during the year, MD's calculated regular and AMT tax depreciation for the current year is $275,000. MD desires to increase its current year cost recovery deductions relating to the equipment additions by taking bonus depreciation MD did not dispose of any assets during the year. MD maintains a life insurance policy on the life of the CEO, Jennifer Lyons. MD is the beneficiary of that policy. During the current year, MD gave $32,000 in cash to the Red Cross to assist with hurricane disaster clean-up in the North Carolina area. There were no changes in stock ownership during the year. The three officers in the company devoted 100% of their time to the company. Financial Statements (kept on a GAAP basis): Modern Day Clothing, Inc. Balance Sheet Assets: 12/31/2018 12/31/2017 Cash $-317250 $ 340,000 205,000 63,000 (13,000) 2,908,000 100,000 200,000 4,010,000 (2,875,000) 250,000 165,000 Accounts Receivable-Credit Cards Accounts Receivable-Trade Less: Allowance for Bad Debts Inventory Tax-exempt Securities U.S. Treasury Bonds Fixed Assets Less: Acc. Depreciation Land-Unimproved (tax and GAAP basis) 232,000 58,000 (11,500) 3,010,000 100,000 200,000 4,650,000 (3,055,000) 250,000 Prepaid Rent 168,000 Total Assets: $5,353,000 $5,284,250 Liabilities and Shareholders' Equity: Accounts Payable Accrued Employee Wages Accrued Officer Bonuses Accrued Employee Vacation Note Payable-First Bank of NC (Credit Line) Note Payable-First Bank of Charlotte 99,000 27,000 110,000 19,000 536,000 3,655,000 93,000 31,000 145,000 21,000 812,000 3,139,750 Capital Stock Additional paid-in Capital 1,000 1,000 99,000 99,000 Retained Earnings 807,000 942500 Total Liabilities and Shareholders' Equity $5,353,000 $5,284250 Income Statement for the year ending December 31, 2018 Amount Item Income $8,936,500 (354,000) Gross Sales Less: Returns 8,582,500 Net Sales (4,910,500) Cost of Goods Sold 3,672,000 Gross Profit 3,750 6,000 2,650 Interest Income-Bank Interest Income-U.S. Gov't Municipal Bond Interest Income 3,684,400 Total Income: Expenses 317,000 437,000 12,600 22,000 765,000 84,500 10,750 12,500 175,500 180,000 5,300 13,750 Officer Salaries Employee Salaries Repairs and Maintenance Bad Debts Rent Payroll Taxes Licensing Fees Property Taxes Interest Expense Depreciation Office Supplies Employee Training Key Man Life Insurance Advertising Employee Benefit Programs Meals and Entertainment Travel Charitable Contribution Insurance Utilities 12,000 58,500 133,000 3,750 8,500 32,000 18,000 243,000 142,000 Telephone Total Expenses: Net Income (loss): $2,686,650 $997,750