Corporate Tax Return Project no ref needed. see attached files Need to show all summed calculations on seperate worksheet Corporate Taxation Spring 2020 1 Tax Return Project Express Catering, Inc. Instructions Please complete Express Catering, Inc.s 2019 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. The project is due on April 20, 6:00pm. Each group only needs to submit one copy to me via email. Instructions for Form 1120 can be found at: https://www.irs.gov/pub/irs-pdf/i1120.pdf Required 1. Form 1120 (page 1); Form 1120 Schedule M-1. 2. If a certain cell is a sum of several items, please attach a statement to show your calculation, otherwise you will not receive partial credits. 3. Excel worksheet showing your book-tax reconciliations. Corporate Taxation Spring 2020 2 Express Catering, Inc. (EC) is incorporated in the state of New York 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. ECs 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, 2012 ECs address has not changed since its 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 related shareholders from the same family for the entire year: Raphael Giordano (father) and his three children Silvia, Andrea, and Marco. All four shareholders are U.S. citizens. 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 The shareholders are also employees of EC and its only corporate officers. EC follows GAAP for book purpose and uses the accrual method for tax purpose. EC is not a subsidiary nor is it in an affiliated group with any other entity. EC reported the following information for the year: _ None of the stock of EC is owned by non-U.S. persons. _ 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. Corporate Taxation Spring 2020 3 Additional information 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. The dividends received by EC during the year were paid by PLE, Inc. (EC owns less than 1% of PLE, Inc. 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, 2015 for $100,000 (no premium or discount paid). The bond was redeemed by New York City on August 1, 2019 for $100,000. EC purchased 200 shares of PLE Inc. on October 10, 2015 for $100,000. On August 10, 2019, EC sold the 200 shares of PLE Inc. for $350 a share. During the year EC contributed $8,000 to the American Lung Association (a qualified charitable organization). ECs inventory-related purchases during the year were $1,166,850. On December 10, 2019, 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 by the end of January 2020. On January 1, 2019, EC paid an insurance premium of $14,500 that covers January 1 to September 30, 2019. In addition, EC paid an insurance premium of $21,000 in September 2019. The new policy is effective October 1, 2019 through September 30, 2020. Both policies insure against damages to business property. ECs 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. Total current year asset additions are as follows (all three assets purchased were new and qualify for a 100% Bonus Depreciation in 2019): Description Date Purchased Amount 5-year MACRS Property October 2, 2019 $480,000 7-year MACRS Property September 10, 2019 $320,000 Corporate Taxation Spring 2020 4 Delivery Truck: 5- year MACRS Property October 12, 2019 $40,000 EC officer information for the year is as follows. All four officers are cash-basis taxpayers. Name Social Security number Percent of time devoted to business Percent of common stock owned Amount of compensation for tax purpose 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 Compensation for all officers and employees was paid by December 31, 2019. On November 1, 2019, a large insurance company paid EC a $100,000 deposit to reserve catering event services on March 18, 2020 at the insurance companys annual meeting in New York City. The money is fully refundable up until January 15, 2020. After January 15, 2020, half of the deposit becomes non-refundable. EC maintains an inventory of several items. Inventory is valued at cost. EC has never changed its 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 make any dividend distributions in the current year. EC does not have any net operating loss carryforward amounts available for the current year. EC made no estimated tax payments during the current year. Corporate Taxation Spring 2020 5 Financial Statements (kept on a GAAP basis): Balance Sheet 12/31/2018 12/31/2019 Assets Cash $ 62,500 $ 839,858 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 $ – Tax-exempt bond $ 100,000 $ – 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 $ – $ 15,750 Prepaid Rent $ 38,500 $ 39,500 Prepaid Advertising $ – $ 27,500 Total Assets $ 2,276,500 $ 3,519,608 Liabilities and Shareholders Equity Accounts Payable $ 254,000 $ 255,500 Event Deposits $ – $ 100,000 Other Liabilities $ 45,910 $ 60,820 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) $ 209,590 $ 931,288 Total Liabilities and Shareholders Equity $ 2,276,500 $ 3,519,608 Corporate Taxation Spring 2020 6 Income Statement for the period ending December 31, 2019 Income Gross Sales $ 3,925,000 Less: Returns $ 8,500 Net Sales $ 3,916,500 Cost of Goods Sold $ (1,129,850) Gross Profit $ 2,786,650 Dividend Income $ 2,800 Interest Income – Bank $ 150 Interest Income – U.S. Treasury $ 3,000 Municipal Bond Interest Income $ 1,400 Capital Loss $ (30,000) Total Income $ 2,764,000 Expenses Compensation for officers $ 530,000 Compensation for employees $ 241,000 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 Expense $ 278,500 Office Supplies $ 5,400 Employee Training $ 3,600 Employee Benefits $ 24,000 Charitable Contribution $ 8,000 Advertising $ 70,000 Business Meals $ 3,400 Travel $ 600 Insurance $ 19,750 Utilities $ 142,000 Telephone $ 14,500 Income before taxes $ 913,250 Federal income tax expense $ 191,552 Net Income (loss) $ 721,698
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