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Using the information provided below, complete Salt Source Inc.'s (SSI) 2013 Form 1120S. Also complete Kim Bentley's Schedule K-1.

Form 4562 for depreciation is not required. Include the amount of tax depreciation given in the problem on the appropriate line on the first page of Form 1120S.

If any information is missing, use reasonable assumptions to fill in the gaps.

The forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructions can be helpful in completing the forms.

A book-to-tax reconciliation

Facts:

Salt Source Inc. (SSI) was formed as a corporation on January 5, 2010, by its two owners Kim Bentley and James Owens. SSI immediately elected to be taxed as an S corporation for federal income tax purposes. SSI sells salt to retailers throughout the Rocky Mountain region. Kim owns 70 percent of the SSI common stock (the only class of stock outstanding) and James owns 30 percent.

SSI is located at 4200 West 400 North, Salt Lake City, UT 84116.

SSI's Employer Identification Number is 87-5467544.

SSI's business activity is wholesale sales. Its business activity code is 424990.

Both shareholders work as employees of the corporation.

Kim is the president of SSI (Social Security number 312-89-4567). Kim's address is 1842 East 8400 South, Sandy, UT 84094.

James is the vice president of SSI (Social Security number 321-98-7645). James's address is 2002 East 8145 South, Sandy, UT 84094.

SSI uses the accrual method of accounting and has a calendar year-end

Other Assets on the balance sheet consist entirely of Prepaid Advertising Expense of $20,000 at the beginning of the year and $21,000 at year end. The prepayments consist of January and February advertising for the subsequent year. SSI has consistently deducted such prepayments for tax purposes

Other Current Liabilities ($5000 at the beginning of the year and $8000 at year end) consist of accrued December rent for each year. The rent payment to the landlord, Kim Bentley, is due (and is, in fact, paid) on the first business day of the subsequent year, e.g., Jan 2.

At the beginning of the year (1/1/13), Other Liabilities consisted of accrued bonuses to regular employees of $10,000. Those bonuses were paid on 3/15/13. At year end (12/31/13), the $14,000 of Other Liabilities consists of $10,000 of bonuses accrued to regular employees and $4000 accrued bonus to James Owens. All bonuses were paid on 3/15/14).

The following is SSI's 2013 income statement:

SSI
Income Statement
For year ending December 31, 2013
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 and entertainment	(2,000)
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	(21,000)
Total expenses	(771,000)
Net income	$109,000

Notes:

SSI's purchases during 2013 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 SSI.

Of the $5,000 interest income, $2,000 was from a West Jordan city bond used to fund public activities (issued in 2007) and $3,000 was from a money market account.

SSI's dividend income comes from publicly traded stocks that SSI has owned for two years.

SSI's compensation is as follows:

Kim $120,000

James $80,000

Other $400,000.

SSI wrote off $6,000 in accounts receivable as uncollectible during the year.

SSI's regular tax depreciation was $17,000. AMT depreciation was $13,000.

SSI distributed $60,000 to its shareholders.

SSI is not required to compute the amount in its accumulated adjustments account.

The following are SSI's book balance sheets as of January 1, 2013, and December 31, 2013.

	2013
	January 1	December 31
Assets
Cash	$90,000	$143,000
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	$646,000
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	369,000
Total liabilities and shareholders' equity	$595,000	$646,000

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