Rachael Ray, Paula Deen and Gordon Ramsay each own one-third of the common stock of Celebrity Catering Services, Inc. (CCS). CCS was 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 - CCS's 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). - Paula is the executive VP and Chief operating officer (SS\#798-56-3241). - Gordon is the VP of Finance (SS\# 879-21-4536). - 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 the year-end as listed on the financial statement. - Its tax liability last year was $10,000. If it has overpaid its federal tax liability, CCS would like to receive a refund. - CCS paid a dividend of $50,000 to each of its three shareholders on December 1. CCS had ample earnings and profits (E\&P) to absorb the distribution. Balance Sheet [1] CCS wrote off $27,000 as uncollectible during the year. [2] On October 15,2022 , CCS sold 500 shares of SD stock for $23,000. It had originally purchased these shares on April 18, 2011 for $10,000. After the sale CCS owns 15.2 percent of SD. [3] CCS paid quarterly federal tax estimated payments of $825. [4] On November 12, 2022, CCS purchased two industrial Hobart mixers for $9,000 each and a Wolf Convection Double Stack Commercial Oven for $55,000. [5] On December 5, 2022, they sold two old mixers which had book accumulated depreciation of $3,000 each, they had been fully depreciated for tax purposes. The old mixers had been purchased at $7,000 each and were sold for $3,000 each. CCS Corporate Tax Return Problem [1] CCS'S inventory-related purchases during the year were $302,000 and direct labor of $789,000. It values its inventory based on cost using FIFO inventory cost flow method. CCS must use the 263A method for valuing its inventory for tax purposes the beginning balance of 263A adjustment is $10,000 and the ending value is $5,000. The current year additional $263A costs are $94,000 of the officer's salary. [2] CCS's dividend income came from Sinful Desserts, Inc. (SD) CCS owned 10,000 shares of stock in SD at the beginning of the year this represented 16% of SD's outstanding stock. [3] $1,100 was from a City of Irvine bond that was used to fund public activities (issued in 2008), $800 was from an Oceanview City bond used to fund public activities (issued in 2007), $700 was from a US Treasury Bond and the rest was from a money market account at Bank of America. [4] The officers' salaries included are: Rachael Ray $280,000; Paula Deen $255,000 and Gordon Ramsey $225,000. [5] The meals were all at restaurants. [6] The interest expense was from an ordinary and necessary deductible business loan. [7] None of the depreciation will be claimed on 1125A. The MACRS depreciation has been computed as $15,500 for assets not purchased during the current fiscal year. [8] Includes $4,200 for premiums paid on term life insurance policies for which CCS is the beneficiary. The policies cover Rachael, Paula and Gordon. Also included is $500 of speeding tickets and parking tickets for food delivery. The rest are other miscellaneous, ordinary and necessary expenses. Rachael Ray, Paula Deen and Gordon Ramsay each own one-third of the common stock of Celebrity Catering Services, Inc. (CCS). CCS was 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 - CCS's 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). - Paula is the executive VP and Chief operating officer (SS\#798-56-3241). - Gordon is the VP of Finance (SS\# 879-21-4536). - 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 the year-end as listed on the financial statement. - Its tax liability last year was $10,000. If it has overpaid its federal tax liability, CCS would like to receive a refund. - CCS paid a dividend of $50,000 to each of its three shareholders on December 1. CCS had ample earnings and profits (E\&P) to absorb the distribution. Balance Sheet [1] CCS wrote off $27,000 as uncollectible during the year. [2] On October 15,2022 , CCS sold 500 shares of SD stock for $23,000. It had originally purchased these shares on April 18, 2011 for $10,000. After the sale CCS owns 15.2 percent of SD. [3] CCS paid quarterly federal tax estimated payments of $825. [4] On November 12, 2022, CCS purchased two industrial Hobart mixers for $9,000 each and a Wolf Convection Double Stack Commercial Oven for $55,000. [5] On December 5, 2022, they sold two old mixers which had book accumulated depreciation of $3,000 each, they had been fully depreciated for tax purposes. The old mixers had been purchased at $7,000 each and were sold for $3,000 each. CCS Corporate Tax Return Problem [1] CCS'S inventory-related purchases during the year were $302,000 and direct labor of $789,000. It values its inventory based on cost using FIFO inventory cost flow method. CCS must use the 263A method for valuing its inventory for tax purposes the beginning balance of 263A adjustment is $10,000 and the ending value is $5,000. The current year additional $263A costs are $94,000 of the officer's salary. [2] CCS's dividend income came from Sinful Desserts, Inc. (SD) CCS owned 10,000 shares of stock in SD at the beginning of the year this represented 16% of SD's outstanding stock. [3] $1,100 was from a City of Irvine bond that was used to fund public activities (issued in 2008), $800 was from an Oceanview City bond used to fund public activities (issued in 2007), $700 was from a US Treasury Bond and the rest was from a money market account at Bank of America. [4] The officers' salaries included are: Rachael Ray $280,000; Paula Deen $255,000 and Gordon Ramsey $225,000. [5] The meals were all at restaurants. [6] The interest expense was from an ordinary and necessary deductible business loan. [7] None of the depreciation will be claimed on 1125A. The MACRS depreciation has been computed as $15,500 for assets not purchased during the current fiscal year. [8] Includes $4,200 for premiums paid on term life insurance policies for which CCS is the beneficiary. The policies cover Rachael, Paula and Gordon. Also included is $500 of speeding tickets and parking tickets for food delivery. The rest are other miscellaneous, ordinary and necessary expenses