Tax Return - Problem 7: C corporation Instructions: Please complete Express Catering, Inc.'s 2021 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. 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. EC's address (unchanged since inception), employer identification number (EIN), and date of incorporation are as follows: Express Catering, Inc. 257 West 55th Avenue New York City, NY 10027 EIN: 13-9823459 Date of Incorporation: March 17, 2014 EC's address has not changed since its inception. 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 EC's 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 160 West 57th Avenue New York City, NY 10027 SSN: 356-87-4322 Shares owned 5,500 100% of time devoted to the business, compensation of $150,000 Silvia Giordano Costa 250 South Main Hoboken, New Jersey 07030 SSN: 284-58-4583 Shares owned 1,500 100% of time devoted to the business, compensation of $130,000 Andrea Giordano 65 East 55th Avenue New York City, NY 10027 SSN: 423-84-2343 Shares owned 1,500 100% of time devoted to the business, compensation of $130,000 Marco Giordano 160 West 57th Avenue New York City, NY 10027 SSN-487-27-4797 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, 2017 for $100,000 (no premium ordiscount paid). The bond was redeemed by New York City on February 1, 2021 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, 2017 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 $9,700 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. he services will be provided and delivered to EC on about June 30, 2022. EC prepaid an insurance premium of $21,000 in September. The new policy is effective October 1, 2021 through September 30, 2022. EC's 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 2021: Description Date Purchased Amount 5-year MACRS Property October 2, 2021 $480,000 7-year MACRS Property September 10, 2021 $320,000 Delivery Truck (over 6,000 [bs): 5-year October 12, 2021 $40,000 MACRS Property EC reports employee compensation amounts that remained unpaid at year-end in Accrued Bonuses, Accrued Vacation and Accrued Wages on the balance sheet, as applicable. The table below provides a summary of the balances in these accounts for December 31, 2020 and 2021. Balance Payment Account Description Account Balance Sheet Date Applicable Employees Date EC's Shareholders 12/31/2020 Accrued Bonuses $45,000 (father and children) 01/20/2021 12/31/2020 $62,500 04/01/2021 - Accrued Vacation Unrelated Employees 11/30/2021 12/31/2020 Accrued Wages $44,500 EC's Shareholders (father and children) 01/20/2021 12/31/2021 Accrued Vacation $73,000 Unpaid as of Unrelated Employees 03/15/2022 12/31/2021 Accrued Wages $51,500 EC's Shareholders (father and children) 01/22/2022Supplementary Details (continued): . On November 1, a large insurance company paid EC a $100,000 deposit to reserve catering event services on March 18, 2022 at the insurance company's annual meeting in New York City. The deposit is fully refundable until January 15, 2022. 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 2021. 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: O April 15th, 2021: $2,000 o September 15th, 2021: $2,000 o June 15th, 2021: $2,000 December 15th, 2021: $1,000 . If applicable, EC wants any overpayment refunded. 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-NEC; 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. . EC's average annual gross receipts have never exceeded $26 million annually.Express Catering, Inc. Financial Statements [kept on a GAAP basis): Balance Sheet Assets: Cash Accounts Receivable Less: Allowance for Bad Debts Inventory Publicly traded securities Tax-exem pt bond U.S. Treasury Bonds Fixed Assets Less: Acc. Depreciation Prepaid Insurance Prepaid Rent Prepaid Advertising Total Assets: 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 Total Liabilities and Shareholders' Equity: 12 31 2020 12 31 2021 $ 62,500 5 1,037,000 145,000 177,000 (32,000) (41,000) 59,000 96,000 100,000 0 100,000 0 125,000 125,000 2,115,000 2,955,000 (436,500) (715,000) 0 15,750 33,500 39,500 0 27,500 $2,276,500 $3,716,750 102,000 131,000 45,000 0 62,500 73,000 44,500 51,500 0 100,000 0 $46,820 45,910 14,000 424,000 657,000 1,243,000 1,415,000 1,000 1,000 99,000 99,000 209,590 1,128 430 $2,276,500 $3,716,750 Income Statement for the period ending December 31, 2021 Item Income: Gross Sales Less: Returns Net Sales Cost of Goods Sold Gross Profit Dividend Income Interest Income -Bank Interest lncome-U.S. Treasury Municipal Bond Interest Income Capital Loss-Shares of Apple, Inc. Total Income: 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 {100% deductible) Travel Insurance Utilities Telephone Federal income tax expense/(benefit) Amount 5 3,925,000 18 500} 3,916,500 [1,129 850! 2,786,650 2,800 150 3,000 1,400 130,000! 2,764,000 743,500 19,000 44,000 230,000 60,000 4,500 12,500 140,000 273,500 5,400 3,600 24,000 9,700 70,000 1,700 500 19,750 142,000 14,500 21,910