Tax Return Final Project Sun & Fun Summary
Can be done in small groups (2-3)
Due on the last day of class
On June 6, 2001, Joe Mooney and Guy Flick formed Sun and Fun Beach Products to manufacture and sell beach gear, toys, and accessories. For several years prior, Joe had run a smaller shop “Cheap Beach Stuff” which operated as a cash basis sole proprietorship. Cheap Beach Stuff reported the following balance sheet:
June 6, 2001
Tax Basis
Fair Value
Cash
6,137
6,137
Accounts Receivable
0
24,558
Inventory
60,647
129,305
Building
55,250
110,000
Land
29,750
55,000
151,784
325,000
Accounts Payable
0
13,189
Notes Payable
24,000
24,000
Mortgage on Land/Building
40,000
40,000
Equity
87,784
247,811
151,784
325,000
Joe transfers all of the assets and liabilities of Cheap Beach Stuff for 70% of the common stock in Sun & Fun.
Guy contributes cash of $40,000, inventory worth $56,205 (basis of $38,013) and provides services to help organize the corporation worth $10,000 for the remaining 30% of the common stock in Sun & Fun.
General Information regarding the corporation is summarized as follows:
The business address is 350 Main Street, White Sands, Florida
The employer identification number is 75-3392543; the principal business activity code is 339900.
Joe is president of the company and Guy is the secretary-treasurer. Both are full-time employess of the corporation. Joe’s compensation is $150,000 (SSN 123-45-6789). Guy’s compensation is $90,000 (SSN 333-22-4444).
The corporation uses the accrual method of accounting and reports on a calendar year basis. Inventory has been consistently valued at lower of cost or market under the FIFO method. Inventory capitalization rules of IRC section 263A do not apply due to the “small business exception” (average annual gross receipts for the three preceding taxable years do not exceed $10 million).
The corporation was not a grantor to a foreign trust, nor does the corporation maintain a foreign…