Tax Return Project Express Catering, Inc.
Instructions:
Please complete Express Catering, Inc.'s 2015 federal tax return based upon the information provided below. 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. You should submit:
1. Form 1120 and all accompanying forms and schedules.
2. If a certain cell is a sum of several items, please attach a statement to show your calculation.
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. 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, 2009
EC's 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 shareholders from the same family: Raphael Giordano (father) and his three children Silvia, Andrea, and Marco. Their personal information is provided below:
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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
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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
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EC follows GAAP and uses the accrual method for both book and tax purposes. 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.
EC reported the following information for the 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 Schedule UTP because its assets do not exceed $10 million.
- EC made several payments in the current year that required the filing of Forms 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.
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.
Despite being profitable the past few years, EC does not want to carryback 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 tax benefit in the future.
The dividends received by EC during the year were paid by Apple, Inc (EC owns less than 1% of Apple Inc. stock). The ex-dividend date was February 28, 2015.
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, 2012 for $100,000 (no premium or discount paid). The bond was redeemed by New York City on February 1, 2015 for $100,000.
EC purchased 200 shares of Apple, Inc. on October 10, 2012 for $100,000 (including commission). On July 10, 2015, EC sold the 200 shares of Apple, Inc. for $350 a share (including commission). Report all capital gains and/or losses on Schedule D (line 8a), you do not need to prepare Form 8949.
During the year EC contributed $8,000 to the American Lung Association. EC's inventory-related purchases during the year were $1,166,850.
On December 10, 2015, 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 2016.
On January 1, 2015, EC paid an insurance premium of $14,500 that covers January 1 to September 30, 2015. In addition, EC paid an insurance premium of $21,000 in September 2015. The new policy is effective October 1, 2015 through September 30, 2016. Both policies insure against damages to business property.
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 (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 the equipment purchased was new, all three assets qualify for a 50% Bonus Depreciation in 2015):
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Description
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Date Purchased
|
Amount
|
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5-year MACRS Property
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October 2, 2015
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$480,000
|
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7-year MACRS Property
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September 10, 2015
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$320,000
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Delivery Truck (Heavy truck; over 6,000 lbs): 5- year MACRS Property
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October 12, 2015
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$40,000
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EC officer information for the year is as follows. The compensation amounts below are calculated using tax rules and are deductible on the 2015 return. All four officers are cash-basis taxpayers. The amounts below should be reported on Form 1125-E.
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Name
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Social Security number
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Percent of time devoted to business
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Percent of common stock owned1
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Amount of compensation for tax purpose
|
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Raphael Giordano
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356-87-4322
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100%
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55%
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150,000
|
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Silvia Costa
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284-58-4583
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100%
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15%
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130,000
|
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Andrea Giordano
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423-84-2343
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100%
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15%
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130,000
|
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Marco Giordano
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487-27-4797
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100%
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15%
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120,000
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As reported on the balance sheet (see below), on December 31, 2014 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 2015. Also as reported on the balance sheet, on December 31, 2015, the accrued wages were $51,500.
The wages were owed to Raphael, Silvia, Andrea, and Marco. The accrued wages were paid on January 22, 2016.
All of the other employees' wages and bonuses were paid on December 31, 2015.
As of December 31, 2014 and December 31, 2015, respectively, EC had accrued vacation payable on its books of $62,500 and $73,000. All of the 2014 vacation accrual was paid during the period from April 1 through November 30, 2015. As of March 15, 2016 EC had paid none of its December 31, 2015 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, 2014 or 2015.
On November 1, 2015, a large insurance company paid EC a $100,000 deposit to reserve catering event services on March 18, 2016 at the insurance company's annual meeting in New York City. The money is fully refundable up until January 15, 2016. Thereafter, half of the deposit becomes non-refundable.
EC maintains an inventory of several items. Inventory is valued at cost. EC has never changed its inventory method. EC uses specific identification for its inventory. EC has never written down any subnormal goods. The rules of Section 263A (UNICAP) do not apply to EC.
EC did not pay a dividend in the current year.
EC made no estimated tax payments during the current year.
Financial Statements (kept on a GAAP basis):
Balance Sheet
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12/31/2014
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12/31/2015
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Assets
|
|
|
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Cash
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$ 62,500
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$ 44,000
|
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Accounts Receivable
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$ 145,000
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$ 177,000
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Less: Allowance for Bad Debts
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$ (32,000)
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$ (41,000)
|
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Inventory
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$ 59,000
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$ 96,000
|
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Publicly traded securities
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$ 100,000
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$ -
|
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Tax-exempt bond
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$ 100,000
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$ -
|
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U.S. Treasury Bonds
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$ 125,000
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$ 125,000
|
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Fixed Assets
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$ 2,115,000
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$ 2,955,000
|
|
Less: Acc. Depreciation
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$ (436,500)
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$ (715,000)
|
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Prepaid Insurance
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$ -
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$ 15,750
|
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Prepaid Rent
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$ 38,500
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$ 39,500
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Prepaid Advertising
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$ -
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$ 27,500
|
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Total Assets
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$ 2,276,500
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$ 2,723,750
|
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Liabilities and Shareholders' Equity
|
|
|
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Accounts Payable
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$ 102,000
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$ 131,000
|
|
Accrued Bonuses
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$ 45,000
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$ -
|
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Accrued Vacation
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$ 62,500
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$ 73,000
|
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Accrued Wages
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$ 44,500
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$ 51,500
|
|
Event Deposits
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$ -
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$ 100,000
|
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Deferred Tax Liability
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$ 45,910
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$ 14,000
|
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Note Payable - First Bank of NY (Credit Line)
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$ 424,000
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$ 657,000
|
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Note Payable - EG Capital Equipment Leasing
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$ 1,243,000
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$ 1,415,000
|
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Capital Stock
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$ 1,000
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$ 1,000
|
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Additional Paid-in Capital
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$ 99,000
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$ 99,000
|
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Retained Earnings (unappropriated)
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$ 209,590
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$ 182,250
|
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Total Liabilities and Shareholders' Equity
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$ 2,276,500
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$ 2,723,750
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Income Statement for the period ending December 31, 2015
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Income:
|
|
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Gross Sales
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$ 2,925,000
|
|
Less: Returns
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$ (8,500)
|
|
Net Sales
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$ 2,916,500
|
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Cost of Goods Sold
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$ (1,129,850)
|
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Gross Profit
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$ 1,786,650
|
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Dividend Income
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$ 2,800
|
|
Interest Income - Bank
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$ 150
|
|
Interest Income - U.S. Treasury
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$ 3,000
|
|
Municipal Bond Interest Income
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$ 1,400
|
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Capital Loss - Apple, Inc.
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$ (30,000)
|
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Total Income
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$ 1,764,000
|
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Expenses:
|
|
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Compensation (including bonus, salary and vacation pay)2
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$ 743,500
|
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Repairs and Maintenance
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$ 19,000
|
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Bad Debts
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$ 44,000
|
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Rent
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$ 230,000
|
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Payroll Taxes
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$ 60,000
|
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Licensing Fees
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$ 4,500
|
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Property Taxes
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$ 12,500
|
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Interest Expense
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$ 140,000
|
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Depreciation Expense
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$ 278,500
|
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Office Supplies
|
$ 5,400
|
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Employee Training
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$ 3,600
|
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Employee Benefits
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$ 24,000
|
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Charitable Contribution
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$ 8,000
|
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Advertising
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$ 70,000
|
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Meals and Entertainment
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$ 3,400
|
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Travel
|
$ 600
|
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Insurance
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$ 19,750
|
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Utilities
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$ 142,000
|
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Telephone
|
$ 14,500
|
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Federal income tax expense (benefit)
|
$ (31,910)
|
|
Total Expenses
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$ 1,791,340
|
|
Net Income (loss)
|
$ (27,340)
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Attachment:- Form 1120.rar