Sample Returns Form 1120-A (Short Form) Rose Flower Shop, Inc., is the corporation for which this samplereturn is filled out. Rose Flower Shop operates a business that sellsfresh cut flowers and plants. It uses an accrual method of accountingand files its returns on the calendar year. A corporation can file Form 1120-A if it has gross receiptsunder $500,000, total income under $500,000, total assets under$500,000, and meets certain other requirements. Since Rose Flower Shopmet all these requirements for 1999, it filed Form 1120-A. Page 1 When you prepare your return, use the pre-addressed label sent toyou by the IRS. It is designed to expedite processing and preventerrors. If you do not have a pre-addressed label, enter yourcorporation's name, street address, city, state, ZIP code, andemployer identification number in the appropriate spaces on the firstpage. Show the name and employer identification number of the corporationin the top margin of schedules and attachments to Form 1120-A. Fill in the items of income, deduction, tax, and payments listed onpage 1 that apply to the business. Do not alter, substitute for, orcross out the line captions on the return forms. Line 1.Gross sales, line 1a, for the year totaled $248,000 using anaccrual method of accounting. After subtracting returned goods andallowances of $7,500, line 1c shows net sales of $240,500. Line 2.Cost of goods sold is $144,000. Figure this using the worksheet(not illustrated) in the form instructions. Line 3.Net sales less cost of goods sold results in a gross profit of$96,500. Lines 4 through 10.Other items of income are next. During the year, the only otheritem of income was taxable interest of $942, shown on line 5. Line 11.Total income is $97,442. Line 12.The $23,000 is the salary of the company president. Line 13.Other salaries and wages of $24,320 are entered here. This includesonly salaries and wages neither included on line 12 nor deducted aspart of cost of goods sold on line 2. Line 16.Rent for Rose Flower Shop's store was $6,000 for the year. Line 17.Deductible taxes totaled $3,320. Line 18.Interest expense accrued during the year was $1,340. This includesinterest both on debts for business operations and debts to carryinvestments. It does not include interest to carry tax-exemptsecurities. See chapter 8 of Publication 535 for a discussion ofdeductible interest. Line 19.During the year, Rose Flower Shop contributed $1,820 to variouscharitable organizations. The $1,820 is less than the limit fordeductible contributions, which is 10% of taxable income figuredwithout the contribution deduction and special deductions entered online 25b. Line 22.Other business deductions consist of $3,000 for advertising. Ifthere had been several expenses included in the total, Rose FlowerShop would have to prepare and attach a supporting schedule. Line 23.Total of lines 12 through 22 is $62,800. Lines 24, 25, and 26.Alojamiento en hotel barato HvolsvollurTaxable income, before the net operating loss deduction and specialdeductions, on line 24 is $34,642. Since Rose Flower Shop did not havea net operating loss or special deduction, the same amount is shown online 26. Tax summary.Rose Flower Shop enters on line 27 the total tax ($5,196) from PartI, line 7, page 2. It lists payments that can be applied against thetax on line 28. The only payments on the Rose Flower Shop return arefour estimated tax deposits totaling $6,000. Enter this amount onlines 28b, 28d, and 28h. The resulting overpayment is $804, which RoseFlower Shop chooses to have credited to the next year's estimated tax.Rose Flower Shop could have chosen to have the overpayment refunded. Signature.An authorized corporate officer must manually sign the return. Page 2 Part I--Tax Computation. Use the tax rate schedule in the form instructions to figure thetax on line 1. Lines 3, 5, and 6, the other taxes and credits listedon Part I, do not apply to Rose Flower Shop. The tax of $5,196 isentered on lines 1, 4, and 7. Part II--Other Information.Answer all questions that apply to your business. Provide thebusiness activity code number, business activity, and product orservice information on lines (a), (b), and (c) of question 1. Thebusiness activity codes are provided in the instructions for Forms1120 and 1120-A. Purchases of $134,014 appear on line (1) ofquestion 5a. Other costs of $9,466 appear on line (3) of question 5a.The supporting itemization is not illustrated. These costs consist ofcosts directly related to the sale of flowers, wreaths, and plants,such as flower pots, vases, stands, boxes, and tissue paper. Part III--Balance Sheets per Books.Provide comparative balance sheets for the beginning and end of thetax year. Entries in Part III should agree with amounts shownelsewhere on the return or included on a worksheet. For example, thefigures for beginning and ending inventories must be the same as thoseappearing on the worksheet in the form instructions for cost of goodssold. Part IV--Reconciliation of Income (Loss) per Books WithIncome per Return.All Form 1120-A corporate filers must complete Part IV unlesstotal assets on line 12, column (b) of Part III are less than $25,000.Since total assets of Rose Flower Shop exceed this amount, itcompletes Part IV. To properly complete Part IV, you need additional information fromthe corporation's books and records. The following profit and lossaccount appeared in the books of Rose Flower Shop for the calendaryear. Account Debit Credit Gross sales $248,000 Sales returnsand allowances $7,500 Cost of goods sold 144,000 Interest income 942 Compensation of officers 23,000 Salaries and wages 24,320 Rents 6,000 Taxes 3,320 Interest expense 1,340 Contributions 1,820 Advertising 3,000 Federal income tax accrued 5,196 Net income per booksafter tax           29,446            Total $248,942 $248,942 Part IV starts with the net income (loss) per books, afterreduction for federal income tax accrued, as shown in thecorporation's profit and loss account. It provides for necessaryadjustments to reconcile this amount with the taxable income shown online 24, page 1. Line 1.$29,446 is the net income per books. It appears in the profit andloss account as net income per books after tax. Line 2.$5,196 is the federal income tax accrued for the tax year. Line 8.$34,642 is the taxable income on line 24, page 1. Form 1120-A, page 1 Form 1120-A, page 2 Form 1120 Tentex Toys, Inc., is the corporation for which this sample returnis filled out. Tentex manufactures and sells children's toys andgames. It uses an accrual method of accounting and files its returnson the calendar year. Page 1 When you prepare your return, use the pre-addressed label sent toyou by the IRS. It is designed to expedite processing and preventerrors. If you do not have a pre-addressed label, enter yourcorporation's name, street address, city, state, ZIP code, andemployer identification number in the appropriate spaces on the firstpage. Show the name and employer identification number of the corporationin the top margin of schedules and attachments to Form 1120. Fill in the items of income, deduction, tax, and payments listed onpage 1 that apply to the business. Do not alter, substitute for, orcross out the line captions on the return forms. Line 1.Gross sales, line 1a, for the year totaled $2,010,000 using anaccrual method of accounting. After subtracting returned goods andallowances of $20,000, line 1c shows net sales of $1,990,000. Line 2.Cost of goods sold is $1,520,000. This is the total from Schedule A(line 8) on page 2. Line 3.Net sales less cost of goods sold results in a gross profit of$470,000. Lines 4 through 10.Enter other items of income next. During the year, Tentex received$10,000 of dividends from domestic corporations, $5,000 of tax-exemptinterest from state bonds, and $4,000 of taxable interest. It alsoreceived $1,500 interest on its business accounts receivable. Enterthe gross amount of dividends on line 4 (you take thedividends-received deduction on line 29b). Line 5 shows total taxableinterest of $5,500. Do not include tax-exempt interest in income. Line 11.Total income is $485,500. Line 12.Enter the salaries of $70,000 paid to company officers listed onSchedule E. Complete Schedule E because total receipts (line 1a pluslines 4 through 10 of page 1) exceed $500,000. Line 13.Enter other salaries and wages of $38,000. This includes onlysalaries and wages neither included on line 12 nor deducted as part ofcost of goods sold on line 2. For a manufacturing company such asTentex, this amount represents nonmanufacturing salaries and wages,such as office salaries. See chapter 2 of Publication 535 for adiscussion of salaries and wages. Tentex is eligible for a $6,000 work opportunity credit figured onForm 5884 (not illustrated). You reduce the total amount of othersalaries and wages, $44,000, by the $6,000 credit that is included online 4d, Schedule J. Only the balance, $38,000, is shown on line 13. Note:The work opportunity credit is an incentive to hire persons fromgroups with a particularly high unemployment rate or other specialemployment needs. Line 14.Repairs include only payments for items that do not add to thevalue of the assets repaired or substantially increase their usefullives. Repairs total $800. See chapter 16 of Publication 535 forinformation on repairs, improvements, and replacements. Line 15.Tentex uses the specific charge-off method of accounting for baddebts. Actual accounts written off during the year total $1,600. Seechapter 14 of Publication 535hotels in Verona for information on bad debt deductions. Line 16.Rent for Tentex's office facilities was $9,200 for the year. Line 17.Deductible taxes totaled $15,000. Line 18.Interest expense accrued during the year was $27,200. This includesinterest both on debts for business operations and debts to carryinvestments. It does not include interest to carry tax-exemptsecurities. See chapter 8 of Publication 535 for a discussion ofdeductible interest. Line 19.During the year, Tentex contributed $11,400 to the United CommunityFund and $12,600 to the State University Scholarship Fund. The total,$24,000, is more than the limit for deductible contributions, which is10% of taxable income figured without the contribution deduction andspecial deductions entered on line 29b. The amount allowable on line19 is $23,150. The excess, $850, not deductible this year, can becarried over to a later year, as explained earlier underCharitable Contributions. Lines 20 and 21.Depreciation from Form 4562 (not illustrated) is $17,600. Enter iton line 20. Reduce this amount by the depreciation ($12,400) includedin the amount claimed on line 5 of Schedule A and enter it on line21a. Deduct the balance of $5,200 on line 21b since it is thedepreciation on the assets used in the indirect operations of thebusiness. Line 22.Tentex does not have a depletion deduction. For information ondepletion, see chapter 13 of Publication 535. Line 23.Advertising expense was $8,700. Lines 24 and 25.Tentex does not have a profit-sharing, stock bonus, pension, orannuity plan. For information on retirement plans, see Publication 560, Retirement Plans for Small Business. Line 26.Other business deductions total $78,300. This includesmiscellaneous office expenses, sales commissions, legal fees, etc.Attach a schedule that itemizes these expenses to the return. Thisexample does not show the supporting itemization. Line 27.Total of lines 12 through 26 is $277,150. Lines 28, 29, and 30.Taxable income before the net operating loss deduction and specialdeductions on line 28 is $208,350. Since Tentex did not have a netoperating loss, its only entry on line 29 is the dividends-receiveddeduction of $8,000 from Schedule C, page 2. Enter this amount onlines 29b and 29c. Taxable income on line 30 is $200,350. Tax summary.Enter on line 31 the total tax ($55,387) from Schedule J, page 3.List payments that you can apply against the tax on line 32. The onlypayments on the Tentex return are four estimated tax deposits totaling$69,117. Enter this amount on lines 32b, 32d, and 32h. The resultingoverpayment is $13,730, which Tentex chooses to have credited to thenext year's estimated tax. Tentex could have chosen to have theoverpayment refunded. Signature.An authorized corporate officer must manually sign the return. Page 2 Schedule A--Cost of Goods Sold.Use Schedule A to report your cost of goods sold. This figure isbeginning inventory, plus merchandise bought or produced during theyear, less ending inventory. Because Tentex is a manufacturer, it mustaccount for its costs of manufacturing as part of cost of goods sold.It valued goods on hand at the beginning of the year at $126,000 andat the end of the year at $298,400, using the lower of cost or market. Add cost of goods manufactured during the year to beginninginventory. This cost consists of three items: direct materials, directlabor, and overhead. List material costs of $1,127,100 on line 2. Thisincludes subcontracted parts as well as raw materials. Salaries and wages on line 3 are $402,000. This amount includeswages paid to production-line workers and the part of the supervisorysalaries that was for actual production of goods. It also includes 30%of the salaries paid to officers. Do not include payments alreadydeducted on line 12 or 13 of page 1. The $40,000 on line 4 is for indirect general administration costs.Other costs of $123,300 appear on line 5. These costs include factoryoverhead such as electricity, fuel, water, small tools, anddepreciation on production-line machinery. This example does not showthe supporting itemization. Note that $12,400 is depreciation on theassets used in the direct operations of the business. Lines 9a through 9f.Check all of the boxes that apply to the business. Schedule C--Dividends and Special Deductions.Dividend income is $10,000, all of which qualified for the 80%dividends-received deduction, line 2, because Tentex is a 20%-or-moreowner. Enter the total dividends received on line 19, Schedule C, andon line 4 of page 1. Enter the total dividends-received deduction online 20, Schedule C, and on line 29b of page 1. Schedule E--Compensation of Officers.Complete this schedule only if your total receipts (line 1a pluslines 4 through 10 of page 1) are $500,000 or more. (Tentex meets thisrequirement.) Since Tentex has only three officers, these are the onlyentries on the schedule. Include here only compensation for servicesrendered. Do not include dividends on stock held by the corporateofficers. Page 3 Schedule J--Tax Computation.Use the tax rate schedules in the form instructions to figure thetax on line 3. Applying the rates to Tentex's taxable income of$200,350 results in income tax of $61,387. Decrease this amount by thework opportunity credit of $6,000, resulting in a total tax of$55,387. Figure the work opportunity credit on Form 5884. Tentex files Form5884 (not illustrated) with its return to support this credit. Other taxes and credits listed on Schedule J do not apply to Tentexthis year. Schedule K--Other Information.Answer all questions that apply to the business. Page 4 Schedule L--Balance Sheets per Books.Provide comparative balance sheets for the beginning and end of thetax year. Entries on this page should agree with amounts shownelsewhere on the return. For example, the figures for beginning andending inventories must be the same as those appearing on Schedule A,page 2. Note that the appropriated retained earnings of Tentexincreased from $30,000 to $40,000 during the year, due to the settingaside of $10,000 as a reserve for contingencies. Tentex took thisamount out of unappropriated retained earnings, as shown on ScheduleM-2. Schedules M-1 and M-2.Tentex completes Schedules M-1 and M-2 because theamount of total assets (line 15, column (d), Schedule L) is over$25,000. To properly complete these schedules, you need additionalinformation from the books and records. The following profit and lossaccount appeared in the books of Tentex for the calendar year. Account Debit Credit Gross sales $2,010,000 Sales returns andallowances $20,000 Cost of goods sold 1,520,000 Dividends received 10,000 Interest income:  On state bonds $5,000  Taxable            5,500 10,500 Proceeds from lifeinsurance 9,500 Premiums on lifeinsurance 9,500 Compensation of officers 70,000 Salaries and wages--indirect 44,000 Repairs 800 Bad debts 1,600 Rental expense 9,200 Taxes 15,000 Interest expense:  On loan to buy tax-exempt bonds $850  Other           27,200 28,050 Contributions:  Deductible $24,000  Other              500 24,500 Depreciation--indirect 3,580 Advertising 8,700 Other expenses ofoperations 78,300 Loss on securities 3,600 Federal income taxaccrued 55,387 Net income per booksafter tax    147,783                  Total $2,040,000 $2,040,000 Tentex analyzed its retained earnings, and the following appearedin this account on its books. Item Debit Credit Balance, January 1 $238,000 Net profit (before federalincome tax) 203,170 Reserve for contingencies $10,000 Income tax accruedfor the year 55,387 Dividends paidduring the year 65,000 Refund of 1996 income tax 18,000 Balance, December 31          328,783            Total $459,170 $459,170 Schedule M-1--Reconciliation of Income (Loss) perBooks With Income per Return.Schedule M-1 starts with the net income (loss) per books,after reduction for federal income tax accrued, as shown in thecorporation's profit and loss account. It provides for necessaryadjustments to reconcile this amount with the taxable income shown online 28, page 1. Line 1.$147,783 is the net income per books. It appears in the profit andloss account as net income per books after tax. Line 2.$55,387 is the federal income tax accrued for the tax year. Line 3.$3,600 is the excess of capital losses over capital gains. The netloss is from the sale of securities. Line 4.This would show all income subject to tax but not recorded on thebooks for this year. This can happen if the corporation valued assetson its books at an amount greater than that used for tax purposes.When it has a sale of these assets, the gain included in taxableincome is greater than that recorded on the books. It shows thedifference here. Line 5.Tentex shows expenses recorded on its books that it does notdeduct. The $850 listed on line 5b is for contributions over the 10%limit. Tentex itemizes the remaining nondeductible expenses on astatement (not illustrated) attached to the return. These include thefollowing expenses. Premiums paid on term life insurance oncorporate officers $9,500 Interest paid to purchasetax-exempt securities 850 Nondeductible contributions 500 Reduction of salaries bywork opportunity credit            6,000 Total $16,850 Line 6.Enter the total of lines 1 through 5. Line 7.This is income recorded on the corporation's books during the yearthat is not taxable and is not included on the return. This total,$14,500, includes insurance proceeds of $9,500 and tax-exempt intereston state bonds of $5,000. Line 8.This includes all deductions claimed for tax purposes but notrecorded in the corporation's books. Tentex enters $1,620 on line 8a.This is the difference between the depreciation claimed on the taxreturn and the depreciation shown on the corporation's books. If thecorporation had other deductions to itemize on this line but notenough space, it would attach an itemized statement to the return. Line 9.Enter $16,120, the total of lines 7 and 8. Line 10.The difference, $208,350, between lines 6 and 9 must agree withline 28, page 1. Schedule M-2--Analysis of Unappropriated RetainedEarnings per Books.Schedule M-2 analyzes the unappropriated retained earnings asshown in the corporation's balance sheets on Schedule L. Line 1.ERROR MSGThis is from line 25 of Schedule L for the beginning of the taxyear. Tentex enters $238,000. Line 2.This is the net income per books (after federal income tax),$147,783. Line 3.Bournemouth hotel roomsThis shows all other increases to retained earnings. Enter the$18,000 refund of 1996 income tax. Line 4.This is the total of lines 1, 2, and 3. Line 5.This includes all distributions to shareholders charged to retainedearnings during the tax year. Enter the $65,000 dividends paid. Line 6.This shows any decreases (other than those on line 5) inunappropriated retained earnings. These decreases are not deductibleon the tax return at the time of the appropriation, but a deductionmay be allowable on a later return. A common example is amounts setaside for contingencies. A customer was injured on company propertyduring 1999 and the company retained an attorney. Tentex set up acontingent liability of $10,000 for the customer's claim. If theysettle the claim during 2000 for $5,000, and the attorney's fee is$2,500, Tentex will charge $7,500 to retained earnings (appropriated).It will also deduct $7,500 in arriving at taxable income for 2000.Another common example of items entered on this line is the payment ofthe prior year's federal tax. Attach a schedule to the return listingall items taken into account for the amount shown on this line. Line 7.This is the total of lines 5 and 6. Line 8.$328,783 is Tentex's retained earnings at the end of its tax year.It determined this figure by subtracting the total on line 7 from thetotal on line 4. This figure must agree with the amount on Schedule Lfor the end of the tax year. Form 1120, page 1 Form 1120, page 2 Form 1120, page 3 Form 1120, page 4