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. Page C-17 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 Page C-18 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 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 2005), $1,750 was from an Oceanside city bond used to fund private activities (issued in 2004), $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, 2011, BCS sold 1,000 shares of its CC stock for $25,000. It had originally purchased these shares on April 18, 2008, 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. None of the depreciation should be claimed on Form 1125A. 8.The $5,000 interest expense was from a business loan. 9.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, 2011, and December 31, 2011. 2011 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 140,000 150,000 U.S. government bonds12 20,000 20,000 State and local bonds 120,000 120,000 Investments in stock 400,000 360,000 Fixed assets 140,000 160,000 Accumulated depreciation (50,000) (60,000)+ 18,000 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

C-2 Appendix C Appendix C 4. 5. 6. 7. city bond used to fund private activities (issued in 2011 ), $3,000 was from a U.S. Treasury bond, and the remaining $6,000 was from a money market account. AMI sold equipment for $10,000. It originally purchased the equipment for $12,000 and, through the date of the sale, had recorded a cumulative total of $4,000 of book depreciation on the asset and a cumulative total of $6,000 of tax depreciation. For tax purposes, the entire gain was recaptured as ordi nary income under 1245. AMT's dividend income came from Simon's Sheet Music. AMI owned 15,000 sh~res of the stock in Simon's Sheet Music (SSM) at the beginning of the year. Tl11S represented 15 percent of the SSM o utstanding stock. On July 22, 2013, AMT sold 2,500 shares of its Simon's Sheet Music Stock for $33,000. It had o rigina lly purchased these shares on April 24, 2006, for $25,000. After the sale, AMI owned 12.5 percent of Simon's Sheet Music. AMI's compensation is as fo llows: Alvin $210,000 T heona $ J90,000 Gwen $ 11 0,000 Carlson $90,000 Other $700,000 8. AMI wrote off $ 10,000 in accounts receivable as uncollectible during the year. 9. Regular tax depreciation was $3 1,000. None of the depreciation should be cla imed on Form l 125A. 10. Of the $62,000 of interest expense, $56,000 was from the mortgage on AMI's building and the remaining $6,000 of interest is from business-related loans. 11 . T he pension expense is the same fo r both book and tax purposes. 12. Other ~xpenses_include $3,000 for premiums paid on term life insurance policies s for which AMI 1 the beneficiary. The policies cover the lives of Alvin and Theona. The following are AMI's audited balance sheets as of January I 2013 and December 31 20 13. ' , ' Assets Cash Accounts receivable Allowance for doubtful accounts Inventory U.S. government bonds State and local bonds Investments in stock Building and other depreciable assets Accumulated depreciation Land Other assets Total assets $ 240,000 600,000 (35,000) 1.400,000 50,000 140,000 300,000 1,500,000 (200,000) 900,000 250,000 $5, 145,000 $ 171,000 700,000 (40,000) 1,700,000 50,000 140,000 275,000 1,600,000 (216,000) 900,000 270,000 $5,550,000 $ 250,000 125,000 800,000 200,000 600,000 3, 170,000 $5, 145,000 $ 220,000 120,000 790,000 162,000 600,000 3,658,000 $5,550,000 Liabilities and Shareholders' Equity Accounts payable Other current liabilities Mortgage Other liabilities Capital stock Retained earnings Total liabilities and shareholders' equity CORPORATE TAX RETURN PROBLEM 2 Required: Complete Blue Catering Service Inc.'s (BCS) 2013 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 website (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. Tt 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 9210 l. 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 fo r the corporation as follows: Cara is the chief executive officer and president (Social Security num ber 23 1-'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. 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 2013: Revenue from sales Sales returns and allowances Cost of goods sold Gross profit from operations $1,800,000 (5,000) (350,000) $1,445,000 Other Income: Capital loss Dividend income Interest income Gross income (15,000) 25,000 10,000 $1.465,000 C-3 C-4 Appendix C Append ix C -... -; - '- i ~r ::-~ s i . . -. ": Income Statement . year endingOece!Jlber 31 , 2013 ;:;: - ' - ._ I - 1 The following are BCS's audited balance sheets as of January I , 2013, and December 31, 201 3. : . Expenses: Compensation Depreciation Bad debt expense Meals and entertainm ent Maintenance Property taxes State incom e taxes Other taxes Rent Interest Advertising Professional services Employee benefits Supplies Other expenses Total expenses Income before taxes Federal income tax expense Net income after t axes (950,000) (10,000) (15,000) (3,000) (6, 000) (11, 000) (45, 000) (44,000) (60,000) (5,000) (52,000) (16,000) (32,000) (5,000) (27,000) (1,281,000) 184,000 (62,000) $ 122,000 . - . - ~ ~ .- . . - _ _ . . January 1 _ ~ - "' 2013 :,...c .. ... .. . I .D~~cmber. ~~~ 1 Assets Cash Accounts receivab le Allowance for doubtful accounts Inventory U.S. government bonds State and local bonds Investments in stock Fixed assets Accumulated depreciation Other assets Total assets $ 180.000 560,000 (60,000) 140,000 $ 205,000 580,000 (50,0 00) 20,000 120,000 400,000 140,000 (50,000) 20,000 $1,470,000 150, 000 20,000 120,000 360,000 160,000 (60,000) 21,000 $1,506,000 280,000 20,000 40,000 400,000 730,000 $1,470,000 240,000 18,000 26,000 400,000 822,000 $1,506,000 Liabilities and Shareholders' Equity Accounts payable Other current liabilities Other liabilities Capital stock Retained earnings Total liabi lities and shareholders' equity Notes: 1. BCS's inventory-related purchases during 201 3 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 2011), $ 1,750 was from an Oceanside city bond used to fund private activities (issued in 2004), $ l ,000 was from a U.S. Treasury bo nd, 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 I , 201 3, BCS sold 1,000 shares of its CC stock for $25 000. It had originally purchased these shares on April 18, 2008, fo r $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. None of the depreciation should be claimed on Form l 125A. 8. The $5,000 interest expense was from a business loan. 9. Other expenses include $6,000 for premiums paid on term life insura nce policies for which BCS is the beneficiary. The policies cover the lives of Cara Janna and Va lerie. ' ' PARTNERSHIPTAX RETURN PROBLEM 1 Required: For 201 3, complete Aspen Ridge limited partnership's page I of Form 1065; complete Schedule K o n page 4 o r Form 1065; complete lines I and 2 or the Analysis of Net Income (Loss) at the top of page 5 of Form 1065; a nd complete Schedules M- 1 and M-2 at the bottom of page 5 of Form 1065. F ina lly, complete M ark Sullivan's Schedule K-1. Form 4562 for depreciation is not required . Include any tax depreciation or Section 179 expense o n the appropriate line of page l of Form 1065 or Schedule K. If any information is missing, use reasonable assumptions to fi ll in any gaps. T he forms, schedules, and instruct ions can be found at the IRS website (www.irs.gov) . The instruction s can be helpful in completing the forms. Facts: The Aspen Ridge limited partnership was formed on April 1, 2009, by Ma rk Sullivan, its general partner, and two o ther limited partners when they each contributed an equal amount of cash to sta rt the new enterprise. Aspen Ridge is an outdoor equipment retailer selling camping, fishing, skiing, and other outdoo r gear to the general public. Mark has a 33.33% profits, loss, and capital interest and the limited partners hold the remaining 66.66% of the profits, loss, and capital interests. Their profits, loss, and capital interests have remained unchanged since the partnership was C-5