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 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). Her salary this year is $180,000.
- Paula is the executive VP and Chief operating officer (SS#798-56-3241). Her salary this year is $120,000.
- Gordon is the VP of Finance (SS# 879-21-4536). His salary this year is $150,000.
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 $36,500 each. Its tax liability last year was $125,800. If it has overpaid its federal tax liability, CCS would like to receive a refund.
In the prior year, the company made a large charitable contribution. $43,000 of that contribution exceeded the amount deductible and was carried forward to the current year.
CCS paid a dividend of $30,000 to each of its shareholders on November 1. CCS had ample earnings and profits (E&P) to absorb the distribution.
Income Statement
|
Income
|
|
|
|
Sales
|
|
$2,600,000
|
|
Sales returns and allowances
|
|
(5,000)
|
|
Net sales
|
|
2,595,000
|
|
Cost of goods sold
|
|
450,0001
|
|
Gross profit
|
|
2,145,000
|
|
Capital loss
|
|
($17,000)
|
|
Dividend income
|
|
25,0002
|
|
Interest income
|
|
8,0003
|
|
Total income
|
|
$2,161,000
|
|
Expenses
|
|
|
|
Salaries-officers
|
$450,000
|
|
|
Salaries and wages - other
|
625,000
|
|
|
Bad Debt
|
15,000
|
|
|
Meals & Entertainment
|
28,000
|
|
|
Repairs and Maintenance
|
6,000
|
|
|
Property Taxes
|
13,000
|
|
|
State Income Tax
|
23,000
|
|
|
Payroll Taxes
|
107,500
|
|
|
Charitable Contribution
|
15,500
|
|
|
Equipment Rent
|
20,000
|
|
|
Warehouse Rent
|
220,000
|
|
|
Interest
|
5,0004
|
|
|
Advertising
|
62,000
|
|
|
Professional Services
|
15,000
|
|
|
Depreciation
|
10,0005
|
|
|
Employee benefits Programs
|
53,040
|
|
|
Other Miscellaneous Expenses
|
15,2006
|
|
|
Total expenses
|
|
1.683,240
|
|
Net income before taxes
|
|
$477,760
|
|
Federal income taxes
|
|
[161,180]
|
|
Net income after taxes
|
|
$316,580
|
Balance Sheet
|
Assets
|
1/1/2016
|
12/31/16
|
|
Cash
|
$180,000
|
$251,760
|
|
Trade and accounts receivables
|
560,000
|
570,000
|
|
Allowance for Doubtful Accounts
|
(60,000)
|
(54,000)7
|
|
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
|
353,0008
|
|
Prepaid Federal Income Taxes
|
0
|
1,686
|
|
Property, plant and equipment
|
140,000
|
160,000
|
|
Accumulated depreciation
|
(50,000)
|
(60,000)
|
|
Other assets
|
20.000
|
45,000
|
|
Total Assets
|
$1,470,000
|
$1,557,446
|
|
Liabilities and Owners' Equity
|
|
|
|
Accounts payable
|
$280,000
|
$130,000
|
|
Income Taxes Payable
|
5,000
|
0
|
|
Deferred Tax Liability
|
10,000
|
26,866
|
|
Other current liabilities
|
5,000
|
21,000
|
|
Other Liabilities
|
40,000
|
23,000
|
|
Capital stock
|
400,000
|
400,000
|
|
Retained earnings
|
730,000
|
956,580
|
|
Total Liabilities and Owners' Equity
|
$1,470,000
|
1,557,446
|
Required:
Complete Celebrity Catering Service Inc.'s (CCS) Form 1120 and all related schedules. 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.