First Place Inc. (FPI) was formed as a corporation on January 5, 2017, by its two owners Kate Kleiber and James Chandler. FPI immediately elected to be taxed as an S corporation for federal income tax purposes. FPI sells mountain climbing gear to retailers throughout the Rocky Mountain region. Kate owns 70 percent of the FPI common stock (the only class of stock outstanding) and James owns 30 percent, and both devote 100% of their working time to FPI.
• FPI is located at 4200 West 400 North, Salt Lake City, Utah 84116.
• FPI’s Employer Identification Number is 87-5467544.
• FPI’s business activity is wholesale sales. Its business activity code is 423910.
• Both shareholders work as employees of the corporation.
• Kate is the president of FPI (Social Security number 312-89-4567). Kate’s address is 1842 East 8400 South, Sandy, Utah 84094.
• James is the vice president of FPI (Social Security number 321-98-7645). James’s address is 2002 East 8145 South, Sandy, Utah 84094.
• FPI uses the accrual method of accounting and has a calendar year-end.

The following is FPI’s 2021 income statement:
FPI Income Statement
For year ending December 31, 2021
Revenue from sales $ 980,000
Sales returns and allowances (10,000)
Cost of goods sold (110,000)
Gross profit from operations $ 860,000
Other income:
Dividend income $ 15,000
Interest income 5,000
Gross income $ 880,000
Expenses:
Compensation $(600,000)
Depreciation (10,000)
Bad debt expense (14,000)
Meals (1,000)
Maintenance (8,000)
Business interest (1,000)
Property taxes (7,000)
Charitable contributions (10,000)
Other taxes (30,000)
Rent (28,000)
Advertising (14,000)
Professional services (11,000)
Employee benefits (12,000)
Supplies (3,000)
Other expenses (19,242)
Total expenses (768,242)
Net income $ 111,758




Notes:
1. FPI’s purchases during 2021 were $115,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of §263A do not apply to FPI, and that the company did not make any changes in the way it measures or tracks inventory during 2021.
2. Of the $5,000 interest income, $2,000 was from a West Jordan city bond used to fund public activities (issued in 2017) and $3,000 was from a money market account.
3. FPI’s dividend income comes from publicly traded stocks that FPI has owned for two years.
4. FPI’s compensation is as follows:
o Kate, $120,000
o James, $80,000
o Other, $400,000.
5. FPI wrote off $6,000 in accounts receivable as uncollectible during the year.
6. FPI’s total MACRS depreciation for 2021 is $17,000 ($7,000 from the K-1)
7. FPI made a $10,000 cash donation to the American Red Cross in 2021.
8. FPI’s Other Deductions (Line 19, Form 1120-S) equals the sum of the follows:
o Meals & Entertainment $1,000
o Professional Services $11,000
o Supplies $3,000
o Other expenses $19,242
9. Note: Schedule K, Line 16c Nondeductible Expenses totals $1,000; M-2, Line 5 Other Reductions totals $3,000
10. FPI’s beginning balance of its Accumulated Adjustments Account (AAA) was $320,000.
11. FPI distributed $60,000 to its shareholders.








FPI’s balance sheet for the period ending 12/31/2021, and the prior year, is below.
FPI Balance Sheet
as of 12/31/2021

12/31/2020 12/31/2021
Assets
Cash $ 90,000 $144,000
Accounts receivable 300,000 310,000
Allowance for doubtful accounts (60,000) (68,000)
Inventory 45,000 50,000
State and local bonds 38,000 38,000
Investments in stock 82,000 82,000
Fixed assets 100,000 100,000
Accumulated depreciation (20,000) (30,000)
Other assets 20,000 21,000
Total assets $ 595,000 $ 647,000
Liabilities and Shareholders’ Equity
Accounts payable $ 60,000 $ 55,000
Other current liabilities 5,000 8,000
Other liabilities 10,000 14,000
Capital stock 200,000 200,000
Retained earnings 320,000 370,000
Total liabilities and shareholders’ equity $595,000 $647,000