Reference no: EM131923265

 

CCS Corporate Tax Return Problem

Rachael Ray, Paula Deen and Gordon Ramsay each own one-­-third of the common stock of Celebrity Catering Services, Inc. (CCS). CCS is 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). Her salary this year is $200,000.
• Paula is the executive VP and Chief operating officer (SS#798-­-56-­-3241). Her salary this year is $140,000.
• Gordon is the VP of Finance (SS# 879-­-21-­-4536). His salary this year is $130,000.

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 has a calendar year-­-end.

CCS made four equal quarterly estimated tax payments of $20,000 each. Its tax liability last year was $70,000. If it has overpaid its federal tax liability, CCS would like to receive a refund.

CCS paid a dividend of $30,000 to its shareholders on November 1. CCS had ample earnings and profits (E&P) to absorb the distribution.

The following is CCS's income statement for 2012:

Income Statement

Income
Sales		$1,800,000
Sales returns and allowances		(5,000)
Net sales		1,795,000
Cost of goods sold		350,000
Gross profit		1,445,000
Capital loss		($15,000)
Dividend income		25,000
Interest income		10,000
Total income		$1,465,000
Expenses
Salaries-­-officers	$470,000
Salaries and wages - other	525,000
Bad Debt	15,000
Meals & Entertainment	3,000
Repairs and Maintenance	6,000

Property Taxes	13,000
State Income Tax	43,000
Other Taxes	44,000
Rent	30,000
Interest	5,000
Advertising	52,000
Professional Services	16,000
Supplies	5,000
Depreciation	10,000
Employee benefits Programs	32,000
Other Expenses	12,000
Total expenses		1,281,000
Net income before taxes		$184,000
Federal income taxes		[62,000]
Net income after taxes		$122,000

Notes:

1. CCS'S inventory-­-related purchases during 2012 were $360,000. It values its inventory based on cost using FIFO inventory cost flow method. Assume the rules of §263A do not apply to CCS.

2. Of the $10,000 interest income, $1,200 was from a City of Irvine bond that was used to fund public activities (issued in 2006), $1,900 was from an Oceanside City bond used to fund public activities (issued in 2005), $1,100 was from a US Treasury Bond and the rest was from a money market account.

3. CCS's dividend income came from Sinful Desserts, Inc. (SD) CCS owned 10,000 shares of stock in CC at the beginning of the year this represented 10% of SD's outstanding stock.

4. On October 1, 2012 CCS sold 1,000 shares of SD stock for $25,000. It had originally purchased these shares on April 18, 2009 for $40,000. After the sale CCS owns 9 percent of SD.

5. CCS wrote off $25,000 in accounts receivable as uncollectible during the year.

6. CCS regular tax depreciation was $28,000. None of the depreciation could be claimed on 1125A

7. The $5,000 interest was from a business loan.

8. Other expenses include $6,000 for premiums paid on term life insurance policies for which CCS is the beneficiary. The policies cover Rachael, Paula and Gordon.

Balance Sheet

Assets	1/1/2012	12/31/12
Cash	$180,000	$185,000
Trade and accounts receivables	560,000	570,000
Allowance for Doubtful Accounts	(60,000)	(50,000)
Inventories	140,000	150,000
U.S. government bonds	20,000	20,000
State & Local bonds	120,000	120,000
Investment In Stock	400,000	360,000
Prepaid federal income taxes	0	35,169
Property, plant and equipment	140,000	160,000
Accumulated depreciation	(50,000)	(60,000)
Other assets	20.000	15,831
Total Assets	$1,470,000	$1,506,000
Liabilities and Owners' Equity
Accounts payable	$280,000	$240,000
Other current liabilities	20,000	21,000
Other Liabilities	40,000	23,000
Capital stock	400,000	400,000
Retained earnings	730,000	822,000
Total Liabilities and Owners' Equity	$1,470,000	1,506,000

Required:

Complete Celebrity Catering Service Inc.'s (CCS) 2012 Form 1120, 1125-­-A, 1125-­-E and all related schedules-­-Schedules C, G, J, K, L, M-­-1, and M-­-2. Be sure to attach schedules for any line item which indicates one is required on the 1120.

FORM 4562 is not required. (Do not complete Form 4562 [depreciation calculation] since you do not have all the information).

If any information is missing, use reasonable assumptions to fill in the gaps and list those assumptions as an attachment.

The forms schedules and instructions can be found at www.irs.gov and download the necessary forms.