tax problems 495449

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 bank account or…