Tax Return - C corporation

Instructions:

Please complete Express Catering, Inc.s 2019 Form 1120, U.S. Corporation Income Tax Return, based upon the information provided below. If required information is missing, use reasonable assumptions to fill in the gaps. You may ignore any Alternative Minimum Tax (AMT) calculations and should not prepare any AMT-related forms.

Express Catering, Inc. (EC) is organized in the state of New York as a corporation and is taxed as a C corporation with a calendar year-end. EC operates a delicatessen/bakery in New York City, NY that specializes in mobile food catering for events and gatherings within the tri-state area. ECs address, employer identification number, and date of incorporation are as follows:

EC has been rapidly expanding its catering business. This expansion has required a significant amount of new equipment purchases. EC sold some of its liquid investments in order to avoid having to take on debt to fund these purchases. Further, EC invested heavily in its catering business by significantly increasing its advertising budget. EC and its officers expect that revenue increases from these expenditures will begin next year.

EC is owned by four related shareholders from the same family for the entire year: Raphael Giordano (father) and his three children Silvia, Andrea, and Marco. None of ECs shareholders are non-U.S. persons. There are currently 10,000 shares of EC common stock issued and outstanding (EC has never issued preferred stock).

The shareholders are also employees of EC and its only corporate officers. The relevant shareholder and officer information for the current year is provided below. Officer compensation is included in Employee Salaries on the income statement. Their personal information is provided below:

Raphael Giordano

Shares owned 5,500

100% of time devoted to the business, compensation of $150,000

Silvia Giordano Costa

Shares owned 1,500

100% of time devoted to the business, compensation of $130,000

Andrea Giordano

Shares owned 1,500

100% of time devoted to the business, compensation of $130,000

Marco Giordano

Shares owned 1,500

100% of time devoted to the business, compensation of $120,000

EC follows the accrual method of accounting (GAAP) and is not a member of any consolidated or affiliated group of entities. EC is not audited by a CPA firm and has never had to restate its financial statement information.

Supplementary Details:

• The dividends received by EC during the year were paid by Apple, Inc. (EC owns less than 20% of Apple, Inc.s stock).
• EC had its sole municipal bond (New York City) redeemed (bought back) in the current year. EC originally purchased the New York City bonds on February 1, 2016 for $100,000 (no premium or discount paid). The bond was redeemed by New York City on February 1, 2019 for $100,000. Both tax basis and proceeds received on this transaction were reported to EC on a Form 1099-B.
• EC purchased 200 shares of Apple, Inc. on October 10, 2016 for $100,000 (including commission). On July 10, of the current year, EC sold the 200 shares of Apple, Inc. for $350 a share (including commission). Both tax basis and proceeds received on this transaction were reported to EC on a form 1099-B.
• During the year, EC contributed $8,000 to the American Lung Association.
• On December 10, EC paid Madison Advertising $27,500 to design a new catering advertisement campaign for next year. This money represented half of the total $55,000 contract price. EC expects that the services will be provided and delivered to EC on about June 30, 2019.
• EC prepaid an insurance premium of $21,000 in September. The new policy is effective October 1, 2019 through September 30, 2020.
• ECs regular tax depreciation for the year is correctly calculated as $350,000 before considering the current year fixed asset additions of $840,000 (see table below). EC wants to claim the fastest recovery method(s) possible on these asset additions without electing any 179 expensing.
• EC acquired the following new fixed assets from unrelated parties in 2019:

Description	Date Purchased	Amount
5-year MACRS Property	October 2, 2019	$480,000
7-year MACRS Property	September 10, 2019	$320,000
Delivery Truck (over 6,000 lbs): 5-year MACRS Property	October 12, 2019	$40,000

Supplementary Details (continued):

• On November 1, a large insurance company paid EC a $100,000 deposit to reserve catering event services on March 18, 2020 at the insurance companys annual meeting in New York City. The deposit is fully refundable until January 15, 2020. Thereafter, half of the deposit becomes non-refundable.
• Meal expenses were incurred for clients and EC staff at important meetings where business was conducted. EC did not incur any entertainment-related expenses in 2019.
• EC values its inventory at cost and has always used the specific identification method for reporting purposes. The company has never written down any inventory for any reason and the rules of Section 263A (UNICAP) do not apply to EC.
• EC made the following estimated Federal income tax payments:
  • April 15^th, 2019: $2,000
  • September 15^th, 2019: $2,000
  • June 15^th, 2019: $2,000
  • December 15^th, 2019: $1,000
• If applicable, EC wants any overpayment credited to its 2020 estimated taxes.

Miscellaneous Information:

• EC did not make any dividend distributions or distributions in excess of current and accumulated earnings and profits during the current year.
• EC does not have any net operating loss carryforward amounts available for the current year.
• EC has never issued publicly offered debt instruments.
• EC is not required to file a Schedule UTP, Uncertain Tax Position Statement.
• EC made several payments during the current year that were required to be reported on Forms 1099; all required Forms 1099 were filed timely by EC.
• EC has never disposed of more than 65% (by value) of its assets in a taxable, non-taxable, or tax-deferred transaction.
• EC did not receive any assets in Section 351 transfers during the year.

Express Catering, Inc. Financial Statements (kept on a GAAP basis): Balance Sheet Assets: 12/31/2018 12/31/2019 Cash Accounts Receivable Less: Allowance for Bad Debts Inventory Publicly traded securities Tax-exempt bond U.S. Treasury Bonds Fixed Assets Less: Acc. Depreciation Prepaid Insurance Prepaid Rent Prepaid Advertising $ 62,500 145,000 (32,000) 59,000 100,000 100,000 125,000 2,115,000 (436,500) 0 38,500 0 $ 1,037,000 177,000 (41,000) 96,000 0 0 125,000 2,955,000 (715,000) 15,750 39,500 27.500 Total Assets: $2,276,500 $3,716,750 Liabilities and Shareholders' Equity: Accounts Payable Accrued Bonuses Accrued Vacation Accrued Wages Event Deposits Income Tax Payable Deferred Tax Liability Note Payable-First Bank of NY (Credit Line) Note Payable-EG Capital Equipment Leasing Capital Stock Additional paid-in Capital Retained Earnings-Unappropriated 102,000 45,000 62,500 44,500 0 0 45,910 424,000 1,243,000 131,000 0 73,000 51,500 100,000 $46,820 14,000 657,000 1,415,000 1,000 99,000 209,590 1,000 99,000 1128,430 Total Liabilities and Shareholders' Equity: $2,276,500 $3,716,750 Income Statement for the period ending December 31, 2019 Item Amount Income: Gross Sales Less: Returns Net Sales $ 3,925,000 18,5001 3,916,500 Cost of Goods Sold (1,129,850 Gross Profit 2,786,650 2,800 150 Dividend Income Interest Income-Bank Interest Income-U.5. Treasury Municipal Bond Interest Income Capital Loss-Shares of Apple, Inc. 3,000 1,400 (30,000) Total income: 2,764,000 Expenses: Employee Salaries Repairs and Maintenance Bad Debts Rent Payroll Taxes Licensing Fees Property Taxes Interest Expense Depreciation Office Supplies Employee Training Employee Benefits Charitable contribution Advertising Meals Travel Insurance Utilities Telephone Federal income tax expense/ benefit) 743,500 19,000 44,000 230,000 60,000 4,500 12,500 140,000 278,500 5,400 3,600 24,000 8,000 70,000 3,400 600 19,750 142,000 14,500 21,910 Total Expenses: 1.845,160 Net Income (Loss): $918,840 Express Catering, Inc. Financial Statements (kept on a GAAP basis): Balance Sheet Assets: 12/31/2018 12/31/2019 Cash Accounts Receivable Less: Allowance for Bad Debts Inventory Publicly traded securities Tax-exempt bond U.S. Treasury Bonds Fixed Assets Less: Acc. Depreciation Prepaid Insurance Prepaid Rent Prepaid Advertising $ 62,500 145,000 (32,000) 59,000 100,000 100,000 125,000 2,115,000 (436,500) 0 38,500 0 $ 1,037,000 177,000 (41,000) 96,000 0 0 125,000 2,955,000 (715,000) 15,750 39,500 27.500 Total Assets: $2,276,500 $3,716,750 Liabilities and Shareholders' Equity: Accounts Payable Accrued Bonuses Accrued Vacation Accrued Wages Event Deposits Income Tax Payable Deferred Tax Liability Note Payable-First Bank of NY (Credit Line) Note Payable-EG Capital Equipment Leasing Capital Stock Additional paid-in Capital Retained Earnings-Unappropriated 102,000 45,000 62,500 44,500 0 0 45,910 424,000 1,243,000 131,000 0 73,000 51,500 100,000 $46,820 14,000 657,000 1,415,000 1,000 99,000 209,590 1,000 99,000 1128,430 Total Liabilities and Shareholders' Equity: $2,276,500 $3,716,750 Income Statement for the period ending December 31, 2019 Item Amount Income: Gross Sales Less: Returns Net Sales $ 3,925,000 18,5001 3,916,500 Cost of Goods Sold (1,129,850 Gross Profit 2,786,650 2,800 150 Dividend Income Interest Income-Bank Interest Income-U.5. Treasury Municipal Bond Interest Income Capital Loss-Shares of Apple, Inc. 3,000 1,400 (30,000) Total income: 2,764,000 Expenses: Employee Salaries Repairs and Maintenance Bad Debts Rent Payroll Taxes Licensing Fees Property Taxes Interest Expense Depreciation Office Supplies Employee Training Employee Benefits Charitable contribution Advertising Meals Travel Insurance Utilities Telephone Federal income tax expense/ benefit) 743,500 19,000 44,000 230,000 60,000 4,500 12,500 140,000 278,500 5,400 3,600 24,000 8,000 70,000 3,400 600 19,750 142,000 14,500 21,910 Total Expenses: 1.845,160 Net Income (Loss): $918,840