Complete Blue catering Service Inc.'s (BCS) 2019 Form 1120 (except for Schedule K and Schedule

M-2), Schedule D, and Schedule G using the information provided below. Use the 21% flat corporate

income tax rate to calculate tax liability.

Assume that BCS does not owe any alternative minimum tax.

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.

You need to turn in following through the Canvas online submission system:

1. Fill out Form 1120 (exclude Schedule K and M-2), Schedule D and Schedule G. It is preferable to

electronically fill out your answers in the tax forms.

2. You also need to use Excel to demonstrate your understanding of the calculation process and provide

tax advice related to charitable contribution. Please use the Tax Return Project_2019 that I posted

on Canvas to build your work.

o In the BTD tab, please provide the calculation of book-tax differences using the format below:

Item name Book Tax Difference Favorable/Unfavorable

o In the Taxable income tab, provide the calculation of taxable corporate income in a way

similar to the Form 1120 (line 1a-line 28). You need to reference line items to the book-tax

difference worksheet (BTD tab) when applicable.

o In the Charitable contribution tab, BCS is considering making a charitable contribution that

will be fully deductible in the 2019 tax return. Please advise BCS the maximum amount of

charitable contribution that will be fully deductible in 2019 and provide your calculation (you

need to reference to numbers in the BTD and Taxable income tabs). You do not need to

use the deduction to calculate a new taxable income.

Cara Gold, Janna Glints, and Val Cruz each own one-third of the common stock of Blue Catering Services

Inc. (BCS). BCS was incorporated on February 4, 2011. It has only one class of stock outstanding and

operates as a C corporation for tax purposes. BCS caters all types of social events throughout southern

California.

BCS is located at 540 Waverly Way, San Diego, CA 92101.

BCS's Employer Identification Number is 38-4743474.

BCS's business activity is catering food and services. Its business activity code is 722300.

The shareholders also work as officers for the corporation as follows:

Cara is the chief executive officer and president (Social Security number 231-54-8976).

Janna is the executive vice president and chief operating officer (Social Security

number 798-56-3241).

Valerie is the vice president of finance (Social Security number 879-21-4536).

All officers devote 100 percent of their time to the business and all officers are U.S. citizens.

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

BCS made four equal estimated tax payments of $20,000 each. Its tax liability last year was $70,000.

BCS paid a dividend of $30,000 to its shareholders on November 1. BCS had ample earnings and

profits (E&P) to absorb the distribution.

The following is BCS's audited income statement for 2019:

BCS

Income Statement

For year ending December 31, 2019

Revenue from sales $1,800,000

Sales returns and allowances (5,000)

Cost of goods sold (350,000)

Gross profit from operations$1,445,000

Other income:

Capital loss (15,000)

Dividend income 25,000

Interest income 10,000

Gross income $1,465,000

Expenses:

Compensation (950,000)

Depreciation (10,000)

Bad debt expense (15,000)

Meals (3,000)

Maintenance (6,000)

Property taxes (11,000)

State income taxes (45,000)

Other taxes (44,000)

Rent (60,000)

Salary (5,000)

Advertising (52,000)

Professional services (16,000)

Employee benefits (32,000)

Supplies (5,000)

Other expenses (27,000)

Total expenses (1,281,000)

Income before taxes 184,000

Federal income tax expense (62,000)

Net income after taxes $ 122,000

1. BCS's inventory-related purchases during 2019 were $360,000. It values its inventory based on cost

using the FIFO inventory cost flow method. Assume the rules of 263A do not apply to BCS.

2. Of the $10,000 interest income, $1,250 was from a City of Irvine bond that was used to fund public

activities (issued in 2015), $1,750 was from an Oceanside city bond used to fund private activities

(issued in 2010), $1,000 was from a U.S. Treasury bond, and the remaining $6,000 was from a

money market account.

3. BCS's dividend income came from Clever Cakes Inc. (CC). BCS owned 10,000 shares of the stock in

Clever Cakes at the beginning of the year. This represented 10 percent of SSM outstanding stock.

4. On October 1, 2019, BCS sold 1,000 shares of its CC stock for $25,000. It had originally purchased

these shares on April 18, 2014, for $40,000. After the sale, BCS owned 9 percent of CC.

5. BCS's compensation is as follows:

Cara $150,000

Janna $140,000

Valerie $130,000

Other $530,000

6. BCS wrote off $25,000 in accounts receivable as uncollectible during the year.

7. BCS's regular tax depreciation was $28,000.

8. Other expenses include $6,000 for premiums paid on term life insurance policies for which BCS is the

beneficiary. The policies cover the lives of Cara, Janna, and Valerie.

The following are BCS's audited balance sheets as of January 1, 2019, and December 31, 2019.

2019

January 1 December 31

Assets

Cash $ 180,000 $ 205,000

Accounts receivable 560,000 580,000

Allowance for doubtful accounts (60,000) (50,000)

Inventory 130,000 140,000

U.S. government bonds 30,000 30,000

State and local bonds 120,000 120,000

Investments in stock 400,000 360,000

Fixed assets 150,000 160,000

Accumulated depreciation (60,000) (60,000)

Other assets 20,000 21,000

Total assets $1,470,000 $1,506,000

Liabilities and Shareholders' 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 shareholders' equity$1,470,000 $1,506,000