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CORPORATE TAX RETURN PROBLEM 2 Required: Complete Blue Catering Service Inc.'s (BCS) 2013 Form 1120, Schedule D, and Schedule G (if applicable) using...
CORPORATE TAX RETURN PROBLEM 2Required:Complete Blue Catering Service Inc.'s (BCS) 2013 Form 1120, Schedule D, and Schedule G (ifapplicable) using the information provided below.Form 4562 for depreciation is not required. Include the amount of tax depreciation given in theproblem on the appropriate line on the first page of Form 1120.Assume that BCS does not owe any alternative minimum tax.If any information is missing, use reasonable assumptions to fill in the gaps.The forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructionscan be helpful in completing the forms.Facts:Cara Siler, Janna Funk, and Valerie Cloward each own one-third of the common stock of Blue CateringServices Inc. (BCS). BCS was incorporated on February 4, 2008. It has only one class of stock outstandingand operates as a C corporation for tax purposes. BCS caters all types of social events throughout southernCalifornia.BCS is located at 540 Waverly Way, San Diego, CA 92101.BCS's Employer Identification Number is 38-4743474.Page C-17BCS's business activity is catering food and services. Its business activity code is 722300.The shareholders also work as officers for the corporation as follows:Cara is the chief executive officer and president (Social Security number 231-54-8976).Janna is the executive vice president and chief operating officer (Social Security number798-56-3241).Valerie is the vice president of finance (Social Security number 879-21-4536).All officers devote 100 percent of their time to the business and all officers are U.S. citizens.BCS uses the accrual method of accounting and has a calendar year-end.BCS made four equal estimated tax payments of $20,000 each. Its tax liability last year was $70,000. Ifit has overpaid its federal tax liability, BCS would like to receive a refund.BCS paid a dividend of $30,000 to its shareholders on November 1. BCS had ample earnings andprofits (E&P) to absorb the distribution.The following is BCS's audited income statement for 2013:IEB Wireframe http://textflow.mheducation.com/parser.php?secload=bm.3.8&fake&print1 of 3 8/12/2014 5:04 PMBCSIncome StatementFor year ending December 31, 2013Revenue from sales $1,800,000 Sales returns and allowances (5,000)(350,000)Gross profit from operations$1,445,000 Other income:Capital loss (15,000)Dividend income 25,000 10,000 Gross income $1,465,000 Expenses:Compensation (950,000)Depreciation (10,000)Bad debt expense (15,000)Meals and entertainment (3,000)Maintenance (6,000)Property taxes (11,000)State income taxes (45,000)Other taxes (44,000)Rent (60,000)Interest (5,000)Advertising (52,000)Professional services (16,000)Employee benefits (32,000)Supplies (5,000)Other expenses (27,000)Total expenses (1,281,000)184,000 Federal income tax expense (62,000)$ 122,000 Page C-18Notes:BCS's inventory-related purchases during 2013 were $360,000. It values its inventory based on costusing the FIFO inventory cost flow method. Assume the rules of §263A do not apply to BCS.1.Of the $10,000 interest income, $1,250 was from a City of Irvine bond that was used to fund publicactivities (issued in 2011), $1,750 was from an Oceanside city bond used to fund private activities(issued in 2004), $1,000 was from a U.S. Treasury bond, and the remaining $6,000 was from a moneymarket account.2.BCS's dividend income came from Clever Cakes Inc. (CC). BCS owned 10,000 shares of the stock inClever Cakes at the beginning of the year. This represented 10 percent of SSM outstanding stock.3.On October 1, 2013, BCS sold 1,000 shares of its CC stock for $25,000. It had originally purchasedthese shares on April 18, 2008, for $40,000. After the sale, BCS owned 9 percent of CC.4.IEB Wireframe http://textflow.mheducation.com/parser.php?secload=bm.3.8&fake&print2 of 3 8/12/2014 5:04 PMBCS's compensation is as follows:Cara $150,000Janna $140,000Valerie $130,000Other $530,0005.6. BCS wrote off $25,000 in accounts receivable as uncollectible during the year.BCS's regular tax depreciation was $28,000. None of the depreciation should be claimed on Form1125A.7.8. The $5,000 interest expense was from a business loan.Other expenses include $6,000 for premiums paid on term life insurance policies for which BCS is thebeneficiary. The policies cover the lives of Cara, Janna, and Valerie.9.The following are BCS's audited balance sheets as of January 1, 2013, and December 31, 2013. 2013 January 1 December 31AssetsCash $ 180,000 $ 205,000580,000(50,000)150,00020,000120,000360,000160,000(60,000)21,000 Liabilities and Shareholders' Equity240,00018,00026,000400,000822,000 Total liabilities and shareholders' equity$1,470,000 $1,506,000
