Tax return problem 7 C corporation Instructions Please complete the required federal corporation income tax return forms for Express Catering, Inc for the 2012 tax year based upon the facts presented below Also, if required information is missing, use reasonable assumptions to fill in the gaps Ignore any Alternative Minimum Tax (AMT) calculations and do not prepare any AMT related forms Express Catering, Inc (EC) is organized in 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, 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 Incorporated March 17, 2007 EC has been at the same address and has not changed its same since inception EC has only common shares issued (no preferred stock) There are currently 10,000 shares of EC common stock issued and outstanding EC is owned by four shareholders from the same family Raphael Giordano (father) and his three children Silvia, Andrea, and Marco 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 Silvia Giordano Costa 250 South Main Hoboken, New Jersey 07030 SSN 284 58 4583 Shares owned 1,500 Andrea Giordano 65 East 55th Avenue New York City, NY 10027 SSN 423 84 2343 Shares owned 1,500 Marco Giordano 160 West 57th Avenue New York City, NY 10027 SSN 487 27 4797 Shares owned 1,500 EC uses the accrual method of accounting and follows GAAP EC is not a subsidiary nor is it in an affiliated group with any other entity EC is not audited by a CPA firm and has never had a restatement of its income statement In addition, EC reported the following information for the current year EC did not pay dividends in excess of its current and accumulated earnings and profits None of the stock of EC is owned by non U S persons EC has never issued publicly offered debt instruments EC is not required to file a Form UTP EC made several payments in the current year that required the filing of federal Form(s) 1099 These Forms 1099 were filed timely by EC During the year, none of the shareholders of EC changed 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 All of the questions on Schedule B, Form 1120 are no for the year Additional information EC has been expanding rapidly 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 Despite being profitable the past few years, EC does not want to carryback any net operating loss (if any) generated in the current year EC believes the next few years will be far more profitable and the losses will be of a greater benefit in the future The dividends received by EC during the year were paid by Apple, Inc 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, 2009 for $100,000 (no premium or discount paid) The bond was redeemed by New York City on February 1, of the current year for $100,000 EC received a Form 1099 B to reflect the transaction Box A of the 1099 B was checked EC purchased 200 shares of Apple, Inc on October 10, 2009 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) EC received a 1099 B reporting the sale proceeds Box A was checked on the 1099 B During the year EC contributed $8,000 to the American Lung Association On December 10, of the current year, 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, of next year EC prepaid its insurance premium of $21,000 in October The new policy is effective November 1, of this year through October 31, of next year 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 EC wants to claim the fastest recovery method(s) possible on these asset additions without electing any 179 expensing Total current year asset additions are as follows (all the equipment purchased was new) Description Date Purchased Amount 5 Year MACRS Property October 2, 2012 $480,000 7 year MACRS Property September 10, 2012 $320,000 Delivery Truck (over 6,000 lbs) 5 Year MACRS Property October 12, 2012 $40,000 EC officer information for the current year is as follows (compensation amounts included in total wages on the income statement for all employees) Name Social Security number Percent of time devoted to business Percent of stock owned Amount of compensation Raphael Giordano 356 87 4322 100 55 150,000 Silvia Costa 284 58 4583 100 15 130,000 Andrea Giordano 423 84 2343 100 15 130,000 Marco Giordano 487 27 4797 100 15 120,000 As reported on the balance sheet (see below), on December 31 of last year, the accrued wages were $44,500 and the accrued bonuses were $45,000 The wages and bonuses were payable to Raphael, Silvia, Andrea, and Marco These accrued wages and bonuses were paid on January 20, of this year Also as reported on the balance sheet, on December 31 of this year, the accrued wages were $51,500 The wages were owed to Raphael, Silvia, Andrea, and Marco The accrued wages were paid on January 22, of next year All of the other employees wages and bonuses were paid on December 31 As of December 31, last year and December 31 of this year, respectively, EC had accrued vacation payable on its books of $62,500 and $73,000 All of the prior year vacation accrual was paid during the period from April 1 through November 30 of the current year As of March 15 of next year, EC had paid none of its current year accrual All of the vacation accrual amounts for both years were owed to employees other than Raphael, Silvia, Andrea and Marco None of the officers had accrued vacation at December 31 of either year end On November 1, a large insurance company paid EC a $100,000 deposit to reserve catering event services on March 18 of next year at the insurance company s annual meeting in New York City The money is fully refundable up until January 15 of next year Thereafter, half of the deposit becomes non refundable EC maintains an inventory of several items Inventory is valued at cost EC has never has never changed it inventory method EC uses specific identification for its inventory EC has never written down any subnormal goods The rules of Section 263A (UNICAP) do not apply to EC EC did not pay a dividend in the current year EC made no estimated tax payments during the current year Financial Statements (kept on a GAAP basis) Express Catering, Inc Balance Sheet Assets 1 01 CY 12 31 CY Cash $ 62,500 $ 44,000 Accounts Receivable 145,000 177,000 Less Allowance for Bad Debts (32,000) (41,000) Inventory 59,000 96,000 Publicly traded securities 100,000 0 Tax exempt bond 100,000 0 U S Treasury Bonds 125,000 125,000 Fixed Assets 2,115,000 2,955,000 Less Acc Depreciation (436,500) (715,000) Prepaid Insurance 0 17,500 Prepaid Rent 38,500 39,500 Prepaid Advertising 0 27,500 Total Assets $2,276,500 $2,725,500 Liabilities and Capital Accounts Payable 102,000 131,000 Accrued Wages 44,500 51,500 Accrued Bonuses 45,000 0 Accrued Vacation 62,500 73,000 Event Deposits 0 100,000 Note Payable First Bank of NY (Credit Line) 424,000 657,000 Note Payable EG Capital Equipment Leasing 1,243,000 1,415,000 Capital Stock 1,000 1,000 Additional paid in Capital 99,000 99,000 Retained Earnings Unappropriated 255,500 198,000 Total Liabilities and Capital $2,276,500 $2,725,500 Income Statement for the period ending December 31, CY Item Amount Income Gross Sales $ 2,925,000 Less Returns (8,500) Net Sales 2,916,500 Cost of Goods Sold (1,129,850) Dividend Income 2,800 Interest Income Bank 150 Interest Income U S Treasury 3,000 Municipal Bond Interest Income 1,400 Capital Loss Apple, Inc (30,000) Total Income 1,764,000 Expenses Employee Salaries 743,500 Repairs and Maintenance 19,000 Bad Debts 44,000 Rent 230,000 Payroll Taxes 60,000 Licensing Fees 4,500 Property Taxes 12,500 Interest Expense 140,000 Depreciation 278,500 Office Supplies 5,400 Employee Training 3,600 Employee Benefits 24,000 Charitable Contribution 8,000 Advertising 70,000 Meals and Entertainment 3,400 Travel 600 Insurance 18,000 Utilities 142,000 Telephone 14,500 Total Expenses $ 1,821,500 Federal income tax expense 0 Net Income ($57,500) Tax return problem 7 C corporation Instructions Please complete the required federal corporation income tax return forms for Express Catering, Inc for the 2012 tax year based upon the facts presented below Also, if required information is missing, use reasonable assumptions to fill in the gaps Ignore any Alternative Minimum Tax (AMT) calculations and do not prepare any AMT related forms Express Catering, Inc (EC) is organized in 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, 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 Incorporated March 17, 2007 EC has been at the same address and has not changed its same since inception EC has only common shares issued (no preferred stock) There are currently 10,000 shares of EC common stock issued and outstanding EC is owned by four shareholders from the same family Raphael Giordano (father) and his three children Silvia, Andrea, and Marco 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 Silvia Giordano Costa 250 South Main Hoboken, New Jersey 07030 SSN 284 58 4583 Shares owned 1,500 Andrea Giordano 65 East 55th Avenue New York City, NY 10027 SSN 423 84 2343 Shares owned 1,500 Marco Giordano 160 West 57th Avenue New York City, NY 10027 SSN 487 27 4797 Shares owned 1,500 EC uses the accrual method of accounting and follows GAAP EC is not a subsidiary nor is it in an affiliated group with any other entity EC is not audited by a CPA firm and has never had a restatement of its income statement In addition, EC reported the following information for the current year EC did not pay dividends in excess of its current and accumulated earnings and profits None of the stock of EC is owned by non U S persons EC has never issued publicly offered debt instruments EC is not required to file a Form UTP EC made several payments in the current year that required the filing of federal Form(s) 1099 These Forms 1099 were filed timely by EC During the year, none of the shareholders of EC changed EC has never disposed of more than 65 (by value) of its assets in a taxable, nontaxable, or tax deferred transaction EC did not receive any assets in Section 351 transfers during the year All of the questions on Schedule B, Form 1120 are no for the year Additional information EC has been expanding rapidly 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 Despite being profitable the past few years, EC does not want to carryback any net operating loss (if any) generated in the current year EC believes the next few years will be far more profitable and the losses will be of a greater benefit in the future The dividends received by EC during the year were paid by Apple, Inc 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, 2009 for $100,000 (no premium or discount paid) The bond was redeemed by New York City on February 1, of the current year for $100,000 EC received a Form 1099 B to reflect the transaction Box A of the 1099 B was checked EC purchased 200 shares of Apple, Inc on October 10, 2009 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) EC received a 1099 B reporting the sale proceeds Box A was checked on the 1099 B During the year EC contributed $8,000 to the American Lung Association On December 10, of the current year, 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, of next year EC prepaid its insurance premium of $21,000 in October The new policy is effective November 1, of this year through October 31, of next year 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 EC wants to claim the fastest recovery method(s) possible on these asset additions without electing any 179 expensing Total current year asset additions are as follows (all the equipment purchased was new) Description 5 Year MACRS Property 7 year MACRS Property Delivery Truck (over 6,000 lbs) 5 Year MACRS Property Date Purchased October 2, 2012 Amount $480,000 September 10, 2012 $320,000 October 12, 2012 $40,000 EC officer information for the current year is as follows (compensation amounts included in total wages on the income statement for all employees) Name Social Security number Percent of stock owned Amount of compensation 356 87 4322 Percent of time devoted to business 100 Raphael Giordano Silvia Costa Andrea Giordano Marco Giordano 55 150,000 284 58 4583 423 84 2343 487 27 4797 100 100 100 15 15 15 130,000 130,000 120,000 As reported on the balance sheet (see below), on December 31 of last year, the accrued wages were $44,500 and the accrued bonuses were $45,000 The wages and bonuses were payable to Raphael, Silvia, Andrea, and Marco These accrued wages and bonuses were paid on January 20, of this year Also as reported on the balance sheet, on December 31 of this year, the accrued wages were $51,500 The wages were owed to Raphael, Silvia, Andrea, and Marco The accrued wages were paid on January 22, of next year All of the other employees' wages and bonuses were paid on December 31 As of December 31, last year and December 31 of this year, respectively, EC had accrued vacation payable on its books of $62,500 and $73,000 All of the prior year vacation accrual was paid during the period from April 1 through November 30 of the current year As of March 15 of next year, EC had paid none of its current year accrual All of the vacation accrual amounts for both years were owed to employees other than Raphael, Silvia, Andrea and Marco None of the officers had accrued vacation at December 31 of either year end On November 1, a large insurance company paid EC a $100,000 deposit to reserve catering event services on March 18 of next year at the insurance company's annual meeting in New York City The money is fully refundable up until January 15 of next year Thereafter, half of the deposit becomes non refundable EC maintains an inventory of several items Inventory is valued at cost EC has never has never changed it inventory method EC uses specific identification for its inventory EC has never written down any subnormal goods The rules of Section 263A (UNICAP) do not apply to EC EC did not pay a dividend in the current year EC made no estimated tax payments during the current year Financial Statements (kept on a GAAP basis) Express Catering, Inc Balance Sheet Assets 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 1 01 CY $ Total Assets 62,500 145,000 (32,000) 59,000 100,000 100,000 125,000 2,115,000 (436,500) 0 38,500 0 $2,276,500 12 31 CY $ 44,000 177,000 (41,000) 96,000 0 0 125,000 2,955,000 (715,000) 17,500 39,500 27,500 $2,725,500 Liabilities and Capital Accounts Payable Accrued Wages Accrued Bonuses Accrued Vacation Event Deposits Note Payable First Bank of NY (Credit Line) Note Payable EG Capital Equipment Leasing 102,000 Capital Stock Additional paid in Capital Retained Earnings Unappropriated 1,000 99,000 255,500 1,000 99,000 198,000 $2,276,500 $2,725,500 Total Liabilities and Capital 131,000 44,500 45,000 62,500 0 424,000 1,243,000 51,500 0 73,000 100,000 657,000 1,415,000 Income Statement for the period ending December 31, CY Item Amount Income Gross Sales Less Returns Net Sales Cost of Goods Sold Dividend Income Interest Income Bank Interest Income U S Treasury Municipal Bond Interest Income Capital Loss Apple, Inc Total Income $ 2,925,000 (8,500) 2,916,500 (1,129,850) 2,800 150 3,000 1,400 (30,000) 1,764,000 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 and Entertainment Travel Insurance Utilities Telephone Total Expenses Federal income tax expense Net Income 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 18,000 142,000 14,500 $ 1,821,500 0 ($57,500)

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Tax return-problem 7: C corporation Instructions: Please complete the required federal corporation income tax return forms for Express Catering, Inc. for the 2012 tax year

Tax return-problem 7: C corporation Instructions: Please complete the required federal corporation income tax return forms for Express Catering, Inc. for the 2012 tax year based upon the facts presented below. Also, if required information is missing, use reasonable assumptions to fill in the gaps. Ignore any Alternative Minimum Tax (AMT) calculations and do not prepare any AMT related forms. Express Catering, Inc. (EC) is organized in 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, 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 Incorporated- March 17, 2007 EC has been at the same address and has not changed its same since inception. EC has only common shares issued (no preferred stock). There are currently 10,000 shares of EC common stock issued and outstanding. EC is owned by four shareholders from the same family: Raphael Giordano (father) and his three children Silvia, Andrea, and Marco. 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 Silvia Giordano Costa 250 South Main Hoboken, New Jersey 07030 SSN-284-58-4583 Shares owned 1,500 Andrea Giordano 65 East 55th Avenue New York City, NY 10027 SSN-423-84-2343 Shares owned 1,500 Marco Giordano 160 West 57th Avenue New York City, NY 10027 SSN-487-27-4797 Shares owned 1,500 EC uses the accrual method of accounting and follows GAAP. EC is not a subsidiary nor is it in an affiliated group with any other entity. EC is not audited by a CPA firm and has never had a restatement of its income statement. In addition, EC reported the following information for the current year: ? EC did not pay dividends in excess of its current and accumulated earnings and profits. ? None of the stock of EC is owned by non U.S. persons ? EC has never issued publicly offered debt instruments. ? EC is not required to file a Form UTP ? EC made several payments in the current year that required the filing of federal Form(s) 1099. These Forms 1099 were filed timely by EC. ? During the year, none of the shareholders of EC changed. ? 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. ? All of the questions on Schedule B, Form 1120 are no for the year. Additional information: EC has been expanding rapidly 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. Despite being profitable the past few years, EC does not want to carryback any net operating loss (if any) generated in the current year. EC believes the next few years will be far more profitable and the losses will be of a greater benefit in the future. The dividends received by EC during the year were paid by Apple, Inc. 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, 2009 for $100,000 (no premium or discount paid). The bond was redeemed by New York City on February 1, of the current year for $100,000. EC received a Form 1099-B to reflect the transaction. Box A of the 1099- B was checked. EC purchased 200 shares of Apple, Inc. on October 10, 2009 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). EC received a 1099-B reporting the sale proceeds. Box A was checked on the 1099-B. During the year EC contributed $8,000 to the American Lung Association. On December 10, of the current year, 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, of next year. EC prepaid its insurance premium of $21,000 in October. The new policy is effective November 1, of this year through October 31, of next year. 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. EC wants to claim the fastest recovery method(s) possible on these asset additions without electing any 179 expensing. Total current year asset additions are as follows (all the equipment purchased was new): Description Date Purchased Amount 5 Year MACRS Property October 2, 2012 $480,000 7 year MACRS Property September 10, 2012 $320,000 Delivery Truck (over 6,000 lbs)-5 Year MACRS Property October 12, 2012 $40,000 EC officer information for the current year is as follows (compensation amounts included in total wages on the income statement for all employees): Name Social Security number Percent of time devoted to business Percent of stock owned Amount of compensation Raphael Giordano 356-87-4322 100% 55% 150,000 Silvia Costa 284-58-4583 100% 15% 130,000 Andrea Giordano 423-84-2343 100% 15% 130,000 Marco Giordano 487-27-4797 100% 15% 120,000 As reported on the balance sheet (see below), on December 31 of last year, the accrued wages were $44,500 and the accrued bonuses were $45,000. The wages and bonuses were payable to Raphael, Silvia, Andrea, and Marco. These accrued wages and bonuses were paid on January 20, of this year. Also as reported on the balance sheet, on December 31 of this year, the accrued wages were $51,500. The wages were owed to Raphael, Silvia, Andrea, and Marco. The accrued wages were paid on January 22, of next year. All of the other employees? wages and bonuses were paid on December 31. As of December 31, last year and December 31 of this year, respectively, EC had accrued vacation payable on its books of $62,500 and $73,000. All of the prior year vacation accrual was paid during the period from April 1 through November 30 of the current year. As of March 15 of next year, EC had paid none of its current year accrual. All of the vacation accrual amounts for both years were owed to employees other than Raphael, Silvia, Andrea and Marco. None of the officers had accrued vacation at December 31 of either year-end. On November 1, a large insurance company paid EC a $100,000 deposit to reserve catering event services on March 18 of next year at the insurance company?s annual meeting in New York City. The money is fully refundable up until January 15 of next year. Thereafter, half of the deposit becomes non-refundable. EC maintains an inventory of several items. Inventory is valued at cost. EC has never has never changed it inventory method. EC uses specific identification for its inventory. EC has never written down any subnormal goods. The rules of Section 263A (UNICAP) do not apply to EC. EC did not pay a dividend in the current year. EC made no estimated tax payments during the current year.? Financial Statements (kept on a GAAP basis): Express Catering, Inc. Balance Sheet Assets: 1/01/CY 12/31/CY Cash $ 62,500 $ 44,000 Accounts Receivable 145,000 177,000 Less: Allowance for Bad Debts (32,000) (41,000) Inventory 59,000 96,000 Publicly traded securities 100,000 0 Tax-exempt bond 100,000 0 U.S. Treasury Bonds 125,000 125,000 Fixed Assets 2,115,000 2,955,000 Less: Acc. Depreciation (436,500) (715,000) Prepaid Insurance 0 17,500 Prepaid Rent 38,500 39,500 Prepaid Advertising 0 27,500 Total Assets: $2,276,500 $2,725,500 Liabilities and Capital: Accounts Payable 102,000 131,000 Accrued Wages 44,500 51,500 Accrued Bonuses 45,000 0 Accrued Vacation 62,500 73,000 Event Deposits 0 100,000 Note Payable-First Bank of NY (Credit Line) 424,000 657,000 Note Payable-EG Capital Equipment Leasing 1,243,000 1,415,000 Capital Stock 1,000 1,000 Additional paid-in Capital 99,000 99,000 Retained Earnings-Unappropriated 255,500 198,000 Total Liabilities and Capital: $2,276,500 $2,725,500 ? Income Statement for the period ending December 31, CY Item Amount Income: Gross Sales $ 2,925,000 Less: Returns (8,500) Net Sales 2,916,500 Cost of Goods Sold (1,129,850) Dividend Income 2,800 Interest Income -Bank 150 Interest Income-U.S. Treasury 3,000 Municipal Bond Interest Income 1,400 Capital Loss-Apple, Inc. (30,000) Total Income: 1,764,000 Expenses: Employee Salaries 743,500 Repairs and Maintenance 19,000 Bad Debts 44,000 Rent 230,000 Payroll Taxes 60,000 Licensing Fees 4,500 Property Taxes 12,500 Interest Expense 140,000 Depreciation 278,500 Office Supplies 5,400 Employee Training 3,600 Employee Benefits 24,000 Charitable Contribution 8,000 Advertising 70,000 Meals and Entertainment 3,400 Travel 600 Insurance 18,000 Utilities 142,000 Telephone 14,500 Total Expenses: $ 1,821,500 Federal income tax expense 0 Net Income: ($57,500) image text in transcribed

Tax return-problem 7: C corporation Instructions: Please complete the required federal corporation income tax return forms for Express Catering, Inc. for the 2012 tax year based upon the facts presented below. Also, if required information is missing, use reasonable assumptions to fill in the gaps. Ignore any Alternative Minimum Tax (AMT) calculations and do not prepare any AMT related forms. Express Catering, Inc. (EC) is organized in 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, 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 Incorporated- March 17, 2007 EC has been at the same address and has not changed its same since inception. EC has only common shares issued (no preferred stock). There are currently 10,000 shares of EC common stock issued and outstanding. EC is owned by four shareholders from the same family: Raphael Giordano (father) and his three children Silvia, Andrea, and Marco. 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 Silvia Giordano Costa 250 South Main Hoboken, New Jersey 07030 SSN-284-58-4583 Shares owned 1,500 Andrea Giordano 65 East 55th Avenue New York City, NY 10027 SSN-423-84-2343 Shares owned 1,500 Marco Giordano 160 West 57th Avenue New York City, NY 10027 SSN-487-27-4797 Shares owned 1,500 EC uses the accrual method of accounting and follows GAAP. EC is not a subsidiary nor is it in an affiliated group with any other entity. EC is not audited by a CPA firm and has never had a restatement of its income statement. In addition, EC reported the following information for the current year: EC did not pay dividends in excess of its current and accumulated earnings and profits. None of the stock of EC is owned by non U.S. persons EC has never issued publicly offered debt instruments. EC is not required to file a Form UTP EC made several payments in the current year that required the filing of federal Form(s) 1099. These Forms 1099 were filed timely by EC. During the year, none of the shareholders of EC changed. EC has never disposed of more than 65% (by value) of its assets in a taxable, nontaxable, or tax-deferred transaction. EC did not receive any assets in Section 351 transfers during the year. All of the questions on Schedule B, Form 1120 are no for the year. Additional information: EC has been expanding rapidly 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. Despite being profitable the past few years, EC does not want to carryback any net operating loss (if any) generated in the current year. EC believes the next few years will be far more profitable and the losses will be of a greater benefit in the future. The dividends received by EC during the year were paid by Apple, Inc. 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, 2009 for $100,000 (no premium or discount paid). The bond was redeemed by New York City on February 1, of the current year for $100,000. EC received a Form 1099-B to reflect the transaction. Box A of the 1099- B was checked. EC purchased 200 shares of Apple, Inc. on October 10, 2009 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). EC received a 1099-B reporting the sale proceeds. Box A was checked on the 1099-B. During the year EC contributed $8,000 to the American Lung Association. On December 10, of the current year, 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, of next year. EC prepaid its insurance premium of $21,000 in October. The new policy is effective November 1, of this year through October 31, of next year. 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. EC wants to claim the fastest recovery method(s) possible on these asset additions without electing any 179 expensing. Total current year asset additions are as follows (all the equipment purchased was new): Description 5 Year MACRS Property 7 year MACRS Property Delivery Truck (over 6,000 lbs)-5 Year MACRS Property Date Purchased October 2, 2012 Amount $480,000 September 10, 2012 $320,000 October 12, 2012 $40,000 EC officer information for the current year is as follows (compensation amounts included in total wages on the income statement for all employees): Name Social Security number Percent of stock owned Amount of compensation 356-87-4322 Percent of time devoted to business 100% Raphael Giordano Silvia Costa Andrea Giordano Marco Giordano 55% 150,000 284-58-4583 423-84-2343 487-27-4797 100% 100% 100% 15% 15% 15% 130,000 130,000 120,000 As reported on the balance sheet (see below), on December 31 of last year, the accrued wages were $44,500 and the accrued bonuses were $45,000. The wages and bonuses were payable to Raphael, Silvia, Andrea, and Marco. These accrued wages and bonuses were paid on January 20, of this year. Also as reported on the balance sheet, on December 31 of this year, the accrued wages were $51,500. The wages were owed to Raphael, Silvia, Andrea, and Marco. The accrued wages were paid on January 22, of next year. All of the other employees' wages and bonuses were paid on December 31. As of December 31, last year and December 31 of this year, respectively, EC had accrued vacation payable on its books of $62,500 and $73,000. All of the prior year vacation accrual was paid during the period from April 1 through November 30 of the current year. As of March 15 of next year, EC had paid none of its current year accrual. All of the vacation accrual amounts for both years were owed to employees other than Raphael, Silvia, Andrea and Marco. None of the officers had accrued vacation at December 31 of either year-end. On November 1, a large insurance company paid EC a $100,000 deposit to reserve catering event services on March 18 of next year at the insurance company's annual meeting in New York City. The money is fully refundable up until January 15 of next year. Thereafter, half of the deposit becomes non-refundable. EC maintains an inventory of several items. Inventory is valued at cost. EC has never has never changed it inventory method. EC uses specific identification for its inventory. EC has never written down any subnormal goods. The rules of Section 263A (UNICAP) do not apply to EC. EC did not pay a dividend in the current year. EC made no estimated tax payments during the current year. Financial Statements (kept on a GAAP basis): Express Catering, Inc. Balance Sheet Assets: 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 1/01/CY $ Total Assets: 62,500 145,000 (32,000) 59,000 100,000 100,000 125,000 2,115,000 (436,500) 0 38,500 0 $2,276,500 12/31/CY $ 44,000 177,000 (41,000) 96,000 0 0 125,000 2,955,000 (715,000) 17,500 39,500 27,500 $2,725,500 Liabilities and Capital: Accounts Payable Accrued Wages Accrued Bonuses Accrued Vacation Event Deposits Note Payable-First Bank of NY (Credit Line) Note Payable-EG Capital Equipment Leasing 102,000 Capital Stock Additional paid-in Capital Retained Earnings-Unappropriated 1,000 99,000 255,500 1,000 99,000 198,000 $2,276,500 $2,725,500 Total Liabilities and Capital: 131,000 44,500 45,000 62,500 0 424,000 1,243,000 51,500 0 73,000 100,000 657,000 1,415,000 Income Statement for the period ending December 31, CY Item Amount Income: Gross Sales Less: Returns Net Sales Cost of Goods Sold Dividend Income Interest Income -Bank Interest Income-U.S. Treasury Municipal Bond Interest Income Capital Loss-Apple, Inc. Total Income: $ 2,925,000 (8,500) 2,916,500 (1,129,850) 2,800 150 3,000 1,400 (30,000) 1,764,000 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 and Entertainment Travel Insurance Utilities Telephone Total Expenses: Federal income tax expense Net Income: 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 18,000 142,000 14,500 $ 1,821,500 0 ($57,500)