On August 1, 2017 FF was notified by its legal counsel that FF was being sued by a former employee regarding her termination of employment from FF.

On August 1, 2017 FF was notified by its legal counsel that FF was being sued by a former employee regarding her termination of employment from FF. On December 21, 2017, a legal settlement was reached with this terminated employee. As part of the settlement, FF agreed to pay the employee a settlement amount of $190,000 on January 10, 2018. FF accrued this expense on its 2017 financial statements.
FF maintains a portfolio of tax-exempt securities (none of which is a private activity bond) and publicly-traded stocks as a measure to provide immediate liquidity if needed (none of these investments is debt financed). All of these securities originate from less than 20% owned domestic corporations.
From inception until this year the Rapid Coaster had been FF’s main attraction. However due to safety, crowd appeal, and other factors, FF disposed of the Rapid Coaster on March 1, 2017 and purchased a new attraction known as the Vomitnator. The Rapid Coaster originally cost $2,000,000 and was placed in service on September 1, 2006. The Rapid Coaster was fully depreciated for book and regular depreciation purposes.
The Vomitnator was installed and rendered operational on March 1, 2017. The Vomitnator cost $6,000,000 to acquire, install, and make ready for service.
FF’s regular tax depreciation for the year is correctly calculated as $1,112,499
before considering the 2017 addition of the Vomitnator
. FF does not want to claim any current year bonus depreciation.
Near the end of the year, FF switched its property and casualty insurance company. As a result, the plan year for its insurance contract was altered. On December 31, 2017 FF prepaid insurance premiums of $25,000 representing coverage through February 15, 2018 as a condition of being accepted by the new company. FF did not expense any of the prepayment for financial accounting purposes
FF rents from vendors several pieces of equipment to use in its business. As of December 31, 2016 and December 31, 2017, respectively, FF had prepaid vendors for equipment rental of $30,000 for January 2017 and $35,000 for January 2018.
On December 26, 2017 FF prepaid a contractor $17,500 to repair several pieces of maintenance shop equipment in January of 2018. FF fully expects that the contractor will have completed the project by January 31, 2018.
All the accrued wages and bonus amounts on the financial statements as of December 31, 2017 were paid on February 28, 2018.
As of December 31, 2016 and 2017, respectively, FF had vacation accruals on its books of $29,000 and $35,000. As of March 15, 2017 and 2018, respectively, FF had paid $5,000 and $8,000 of those accrued amounts.
On December 2, 2017, the millionth customer entered the park. To recognize the accomplishment and to promote the amusement park through print and radio media advertisements, FF held a give-away contest wherein the lucky customer deemed to be the millionth customer would be given $100,000. The check was presented to the lucky winner on January 15, 2018.
The land on which FF resides is owned by the county. FF has a very favorable lease with the county that allows FF the ability to sublease any portion of the ground to another tenant. The board of directors of FF made the decision in the fall of 2017 to seek out a tenant for unimproved land that would not be utilized in any potential expansion plans. FF identified the potential renter and entered into a contract with the renter on December 1, 2017. The rent period is to begin on January 1, 2018; however, as part of the contract, the renter was required to pay a full six-month rental amount ($50,000) to FF by December 31, 2017. FF received a check of $50,000 on December 27, 2017 from the renter. This rental payment is not refundable to the renter under any circumstances.
FF maintains an inventory of several items that it uses in its amusement park. Inventory is valued at cost. FF has never has never changed it inventory method. FF uses specific identification for its inventory. FF has never written down any subnormal goods. The rules of Section 263A (Unicap) apply to FF. The Unicap calculated costs related to ending inventory at December 31, 2016 and 2017, respectively, were $15,000 and $19,000.
On December 1, 2017, FF paid a $400,000 dividend to all common stockholders.
During the year, FF made federal estimated income tax payments of $72,500 each on April 15, June 15, September 15 and December 15 of 2017 ($290,000 in total). If FF has overpaid its current year estimated taxes, it would like to apply the excess to its estimated tax payments for next year. FF is NOT a “large corporation.” FF’s 2016 tax liability was $200,000.
FF made California state estimated income tax payments of $15,000 each on April 15, June 15, September 15 and December 15 of 2017 ($60,000 in total).
FF does not have a minimum tax credit carryover from 2016.
Financial Statements (kept on a GAAP basis):
Assets: 12/31/16 12/31/17
Cash $ 165,000 $ 119,000
Accounts Receivable 128,000 75,000
Less: Allowance for Bad Debts (43,000) (49,000)
Inventory 422,000 390,000
Tax-exempt Securities 150,000 150,000
Publicly Traded Stocks 200,000 200,000
Fixed Assets 24,000,000 28,000,000
Less: Acc. Depreciation (13,542,000) (12,892,000)
Prepaid Insurance 0 25,000
Prepaid Rent 30,000 35,000
Prepaid Installation Contract 0 17,500
Other Assets 150,000 250,000
Total Assets: $11,660,000 $16,320,500
Accounts Payable 48,000 62,000
Accrued Wages 123,000 118,000
Accrued Bonuses 68,500 39,000
Accrued Vacation 29,000 35,000
Legal Settlement Accrual 0 190,000
Prize Accrual 0 100,000
Unearned Rental Income 0 50,000
Note Payable-First Bank of CA (Credit Line) 1,540,000 1, 084,000
Note Payable-Equipment Leasing, Inc. 7,112,000 11,728,000
Capital Stock 100,000 100,000
Additional paid-in Capital 2,000,000 2,000,000
Retained Earnings-Unappropriated
639,500 814,500
Total Liabilities and Shareholders’ Equity: $11,660,000 $16,320,500
Income Statement for the period ending December 31, 2017
Item Amount
Gross Sales $26,523,275
Less: Returns
Net Sales 26,409,775
Cost of Goods Sold (2,052,500)
Dividend Income 4,300
Interest Income 2,650
Municipal Bond Interest Income
Total Income: 24,366,525
Employee Salaries 13,905,600
Repairs and Maintenance 492,350
Bad Debts 58,000
Rent 1,543,000
Payroll Taxes 1,112,400
Licensing Fees 10,750
Property Taxes 277,000
Interest Expense 781,000
Depreciation 1,350,000
Office Supplies 33,950
Employee Training 53,750
Safety Expenses 31,000
Political Contribution 2,500
CA Safety Commission Fine 5,000
Advertising 290,500
Admission Supplies 143,250
Meals and Entertainment 8,500
Travel 13,550
Insurance 215,000
Legal Settlement 190,000
Prize Contest Expense 100,000
Fuel 158,675
Utilities 2,530,500
Total Expenses before taxes:
CA state income tax expense 60,000
Federal tax expense
Total income taxes
Net Income: $ 575,000
How do I complete schedule M-1 and schedule j from this information?

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