CORPORATE TAX RETURN PROBLEM 2

Required:

• Complete Blue Catering Service Inc.'s (BCS) 2011 Form 1120, Schedule D, and Schedule G (if applicable) using the information provided below.

• 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 1120.

• 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 Web site (www.irs.gov). The instructions can be helpful in completing the forms.

Facts:

Cara Siler, Janna Funk, and Valerie Cloward each own one-third of the common stock of Blue Catering Services Inc. (BCS). BCS was incorporated on February 4, 2008. 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.

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• 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 (BSocial 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. If it has overpaid its federal tax liability, BCS would like to receive a refund.

• 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 2011:

BCS
Income Statement
For year ending December 31, 2011
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 (7,000 taxable)	10,000
Gross income	$1,465,000
????Expenses:
Compensation	(950,000)
Depreciation	(10,000)
Bad debt expense	(15,000)
Meals and entertainment	(3,000)
Maintenance	(6,000)
Property taxes	(11,000)
State income taxes	(45,000)
Other taxes	(44,000)
Rent	(60,000)
Interest	(5,000)
Advertising	(52,000)
Professional services	(16,000)
Employee benefits	(32,000)
Supplies	(5,000)
Other expenses	(27,000)+ 6000
Total expenses	(1,281,000)
Income before taxes	184,000
Federal income tax expense	(62,000)
Net income after taxes	$?122,000

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Notes:

1. BCS's inventory-related purchases during 2011 were $360,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of