Question
Instructions Complete Express Catering Services Inc.s (ECS) 2020 Form 1120 (Links to an external site.) and Schedule D (Links to an external site.) based upon
Instructions
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Complete Express Catering Services Inc.s (ECS) 2020 Form 1120 (Links to an external site.) and Schedule D (Links to an external site.) based upon the facts presented.
- If any information is missing, use reasonable assumptions to fill in the gaps.
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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.
- The forms, schedules and instructions can be found at the IRS website (Links to an external site.) (www.irs.gov). The instructions can be helpful in completing the forms.
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Please include your name in the Preparer section of the Form.
Company Information
Lisa Cutter, Jeff McMullen, and Tina Woodbrook each own one-third of the common stock of Express Catering Services Inc. ECS was incorporated on March 17, 2010. It has only one class of stock outstanding and operates as a C-Corporation for tax purposes. ECS caters all types of social events throughout the tri-state area.
- ECS is located at 257 West 55th Avenue, New York City, NY 10027.
- ECSs Employer Identification Number is 13-9823459.
- ECSs business activity is catering food services. Its business activity code is 722300.
- The shareholders also work as officers for the corporation as follows:
- Lisa is the Chief Executive Officer (CEO) and President (Social Security Number 356-87-4322).
- Jeff is the Chief Operating Officer (COO) and Executive Vice President (Social Security Number 284-58-4583).
- Tina is the Vice President of Finance (Social Security Number 423-84-2343).
- All officers devote 100 percent of their time to the business and all officers are U.S. citizens.
- ECS uses the accrual method of accounting and has a calendar year-end.
- ECS made four equal estimated tax payments of $25,000 each. Its tax liability last year was $1100,000. If it has overpaid its federal tax liability, ECS would like to receive a refund.
- ECS paid a dividend of $30,000 to its shareholders on November 1. ECS had ample earnings and profits (E&P) to absorb the distribution.
Financial Statements
The following is ECSs audited income statement for 2020:
Income | |
Revenue from sales | $ 2,100,000 |
Sales returns and allowances | (8,000) |
Cost of goods sold | (350,000) |
Gross profit from operations | 1,742,000 |
Other Income | |
Capital loss | $ (15,000) |
Dividend income | 25,000 |
Interest income | 10,000 |
Gross income | $ 1,762,000 |
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) |
Interest | (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 | 481,000 |
Federal income tax expense | (150,000) |
Net income after taxes | $ 331,000 |
The following are ECSs audited balance sheets as of January 1, 2020, and December 31, 2020.
1/1/2020 | 12/31/2020 | |
Assets | ||
Cash | $ 180,000 | $ 305,000 |
Accounts receivable | 560,000 | 630,000 |
Allowance for doubtful accounts | (60,000) | (50,000) |
Inventory | 140,000 | 169,000 |
U.S. government bonds | 20,000 | 20,000 |
State and local bonds | 120,000 | 120,000 |
Investments in stock | 400,000 | 360,000 |
Fixed assets | 140,000 | 200,000 |
Accumulated depreciation | (50,000) | (60,000) |
Other assets | 20,000 | 21,000 |
Total Assets | $ 1,470,000 | $ 1,715,000 |
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 | 1,031,000 |
Total liabilities and shareholders' equity | $ 1,470,000 | $ 1,715,000 |
Additional Notes
- ECSs inventory-related purchases during 2020 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 ECS.
- Of the $10,000 interest income, $1,250 was from a New York City bond issued in 2015, $1,750 was from a Manhattan Borough bond issued in 2014, $1,000 was from a U.S. Treasury bond, and the remaining $6,000 was from a money market account.
- ECSs dividend income came from Slatterys Inc. ECS owned 10,000 shares of the stock in Slatterys at the beginning of the year. This represented 10 percent of Slatterys outstanding stock.
- On October 1, 2020, ECS sold 1,000 shares of its Slatterys stock for $25,000. It had originally purchased these shares on April 18, 2013, for $40,000. After the sale, ECS owned 9 percent of Slatterys.
- ECSs compensation is as follows:
- Lisa, $150,000
- Jeff, $140,000
- Tina, $130,000
- Other, $530,000
- ECS wrote off $25,000 in accounts receivable as uncollectible during the year.
- ECSs tax depreciation was $28,000. None of the depreciation should be claimed on Form 1125A.
- The $5,000 interest expense was from a business loan.
- Other expenses include $6,000 for premiums paid on term life insurance policies for which ECS is the beneficiary. The policies cover the lives of Lisa, Jeff, and Tina.
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