1 CCS Corporate Tax Return Problem Rachael Ray, Paula Deen and Gordon Ramsay each own one third of the common stock of Celebrity Catering Services, Inc. (CCS). CCS is incorporated on February 2, 2009. It has only one class of stock outstanding and operates as a C corporation for tax purposes. CCS caters to all types of social events. CCS is located at 540 Waverly Way Burbank, CA 91501 Its employer ID is 38 4743474 CCSs business activity is catering food services. Its business activity code is 722300. The shareholders also work as officers for the corporation as follows: Rachael is the chief executive officer and president, (SS# 231 54 8976). Her salary this year is $150,000. Paula is the executive VP and Chief operating officer (SS#798 56 3241). Her salary this year is $140,000. Gordon is the VP of Finance (SS# 879 21 4536). His salary this year is $130,000. All officers devote 100% of their time to the business and all of the officers are US citizens. CCS uses the accrual method of accounting and h as a calendar year end. CCS made four equal quarterly estimated tax payments of $20,000 each. Its tax liability last year was $70,000. If it has overpaid its federal tax liability, CCS would like to receive a refund. CCS paid a dividend of $1 0,000 to each of its shareholders on November 1. CCS had ample earnings and profits (E&E) to absorb the distribution. The following is CCSs income statement for 2012: Income Statement Income Sales $1,800,000 Sales returns and allowances (5,000) Net sales 1,795,000 Cost of goods sold 350,000 Gross profit 1,445,000 Capital loss ($15,000) Dividend income 25,000 Interest income 10,000 Total income $1,465,000 Expenses Salaries officers $420,000 Salaries and wages other 530,000 Bad Debt 15,000 Meals & Entertainment 3,000 Repairs and Maintenance 6,000 2 Property Taxes 11,000 State Income Tax 45,000 Other Taxes 44,000 Rent 60,000 Interest 5,000 Advertising 52,000 Professional Services 16,000 Supplies 5,000 Depreciation 10,000 Employee benefits Programs 32,000 Other Expenses 27,000 Total expenses 1, 281,000 Net income before taxes $184,000 Federal income taxes [62,000] Net income after taxes $122,000 Notes: 1. CCSS inventory related purchases during 2012 were $360,000. It values its inventory based on cost using FIFO inventory cost flow method. Assume the rules of 263A do not apply to CCS. 2. Of the $10,000 interest income, $1, 1 00 was from a City of Irvine b ond that was used to fund public activities (issued in 2006), $1,900 was from an Oceanside City bond used to fund public activities (issued in 2005), $ 2 ,100 was from a US Treasury Bond and the rest was from a money market account. 3. CCSs dividend inco me came from Sinful Desserts, Inc. (SD) CCS owned 10,000 shares of stock in SD at the beginning of the year this represented 10% of SDs outstanding stock. 4. On October 1, 2012 CCS sold 1,000 shares of SD stock for $1 5,000. It had originally purchased these shares on April 18, 2009 for $3 0,000. After the sale CCS owns 9 percent of SD. 5. CCS wrote off $25 ,000 in accounts receivable as uncollectible during the year. 6. CCS regular tax depreciation was $28,000. None of the depreciation could be claimed on 1125A 7. The $5,000 interest was from a business loan. 8. Other expenses include $ 18 ,000 for premiums paid on term life insurance policies for which CCS is the beneficiary. The policies cover Rachael, Paula and Gordon. Also included in other expenses is a donation of $3,000 to the Food Bank. 3 Balance Sheet Assets 1/1/2012 12/31/12 Cash $180,000 $185,000 Trade and accounts receivables 560,000 570,000 Allowance for Doubtful Accounts (60,000) (50,000) Inventories 140,000 150,000 U.S. government bonds 20,000 20,000 State & Local bonds 120,000 120,000 Investment In Stock 400,000 360,000 Prepaid federal income taxes 0 3 0,450 Property, plant and equipment 140,000 160,000 Accumulated depreciation (50,000) (60,000) Other assets 20.000 20 , 550 Total Assets $1,470,000 $1,506,000 Liabilities and Owners' Equity Accounts payable $280,000 $240,000 Other current liabilities 20,000 18,000 Other Liabilities 40,000 26,000 Capital stock 400,000 400,000 Retained earnings 730,000 822,000 Total Liabilities and Owners' Equity $1,470,000 1,506,000 Required: Complete Celebrity Catering Service Inc.s (CCS) 2012 Form 1120, 1125 A, 1125 E and all related schedules Schedules C, G, J, K, L, M 1, and M 2. Be sure to attach schedules for any line item which indicates one is required on the 1120. FORM 4562 is not required. (Do not c omplete Form 4562 [depreciation calculation] since you d o not have all the information). If any information is missing, use reasonable assumptions to fill in the gaps and list those assumptions as an attachment. The forms schedules and instructions can be found at www.irs.gov and download the necessary forms