federal 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.

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    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)

     

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