Tax return-problem 7 C corporationInstructionsPlease compl.docx

Tax return-problem 7: C 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.
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
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
SSN-423-84-2343
Shares owned 1,500
Marco Giordano
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)
Tax Return 10: S Corporation
Instructions:

Please complete the required federal corporation income tax
return forms for Modern Day Clothing, Inc. for the 2012 tax
year, unless instructed otherwise, 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 or reporting.
Modern Day Clothing, Inc. (MD) is organized as a corporation
in the state of North Carolina and is taxed as an “S” corporation
with a calendar year-end. MD operates four small boutique
clothing outlet stores (family clothing stores) in the cities of
Charlotte, Durham, Raleigh and Winston-Salem North Carolina.
MD’s address, employer identification number, date of
incorporation, and effective date of its S corporation election
are as follows:
Modern Day Clothing, Inc.
1515 North Lincoln Highway
Charlotte, North Carolina 28201
EIN- 14-2953556
Date Incorporated- February 2, 1996
Effective date of the S election was July 1, Prior year (PY).
MD has been at the same address since inception.
MD has only common shares issued. There are currently 10,000
shares of MD common stock outstanding and issued. There
were no stock transfers during the current tax year.
MD is owned by the following four shareholders as follows:
Jennifer Lyons
85 Shady Elm
Charlotte, North Carolina, 28201

SSN 524-31-3493
Number of common shares owned 4,300
Robert Newberry
RD Route 843
Rural Hall, North Carolina 27045
SSN 482-26-5241
Lamar Taylor
35 S. Main Street
Mt. Airy, North Carolina 27030
SSN 545-16-4239
Lacrecia Williams
9851 Old Colonial Highway
Charlotte, North Carolina, 28201
SSN 429-82-9384
In addition, MD reported the following information for the
current year:
· MD uses the accrual method of accounting.
· MD is not a subsidiary nor is it in an affiliated group with any
other entity.
· MD does not own directly or indirectly 20% or more of any
other entity (including corporations or partnerships).
· MD has never issued any restrictive stock
· MD has never been required to file an IRS Form 8918
· MD has never issued any publicly traded debt
· MD was taxed as a C corporation from inception through the
effective date of the S election.
· MD had net unrecognized built-in gain from prior years of
$400,000 as of January 1 of the current year. The entire gain

was attributable to unimproved land that MD owned. The land
was originally purchased for $250,000 on June 16, 1997. On
August 1 of the current year, MD sold the unimproved land for
a sales price of $850,000 (net of selling commissions). MD did
not receive a Form 1099-B reflecting the sale. The land was
held by MD as an investment asset only and was not connected
with its clothing business.
· MD has accumulated earnings and profits as of the end of the
current tax year of $500,000.
· MD has an Accumulated Adjustments Account balance at
12/31/PY of $125,000.
· MD has an Other Adjustments account balance at 12/31/PY of
$7,000.
· MD did not have any non-shareholder debt that was cancelled
or was forgiven nor had the terms modified so as to reduce the
principal amount of the debt during the current tax year.
· MD has never made nor caused to be made a qualified
subchapter S subsidiary election (Qsub).
· MD has never caused a Qsub election to be revoked or
terminated.
· MD did make payments in the current year that required the
filing of IRS forms 1099. All of those 1099s were filed timely.
Additional information:
None of the expenses incurred by MD during the current year
relate to the production of or the carrying of the tax-exempt
securities held in portfolio. The tax-exempt securities are
maintained in a separate brokerage account distinct from other
holdings.
MD maintains it inventory on the cost method. MD has never
has never changed it inventory method. MD uses specific
identification for its inventory. MD has never written down any
subnormal goods. The rules of Section 263A (UNICAP) do not

apply to MD.
MD leases all of its real property.
On December 1 of the current year, MD made a distribution to
all common stockholders of $85 per common share owned as of
that date.
On July 1 of the current year, MD purchased $640,000 of retail
trade property (5-year MACRS property) that it used to expand
its Charlotte store. Not including the $640,000 of new year
additions, MD’s calculated tax depreciation for the current year
is $275,000. MD desires to recover the $640,000 of equipment
additions over the shortest recovery period possible.
Book depreciation (including all assets) for the current year was
$180,000.
Other than the unimproved land, MD did not dispose of any
assets during the year.
MD maintains a life insurance policy on the life of the CEO,
Jennifer Lyons. MD is the beneficiary of that policy.
During the current year, MD gave $25,000 in cash to the Red
Cross to assist with hurricane disaster clean-up in the North
Carolina area.
All of the accrued wage amounts on the balance sheet as of
December 31, CY were paid on January 15 of next year.
The accrued bonus amounts on the balance sheets as of
December 31, PY and CY respectively were paid on July 1, CY
and July 1 of next year, CY respectively.
As of December 31, PY and CY, respectively, MD had accrued
vacation accruals on its books of $19,000 and $21,000. As of
March 15, CY and March 15 of next year, respectively, MD had
paid $3,000 and $9,000 of those accrued amounts. None of

these accrued amounts relate to officers’ compensation.
MD paid $140,000 ($35,000 each on 4/15/CY, 6/15/CY,
9/15/CY and 12/15/CY) to the U.S. Treasury related to the
current year federal taxes and $20,000 to the state of North
Carolina related to the current year state income taxes.
Financial Statements (kept on a GAAP basis):
Modern Day Clothing, Inc.
Balance Sheet
Assets: 1/01/CY
12/31/CY
Cash $ 340,000 $
385,000
Accounts Receivable-Credit Cards 205,000
232,000
Accounts Receivable-Trade 63,000
58,000
Less: Allowance for Bad Debts (13,000)
(11,500)
Inventory 2,908,000
3,010,000
Tax-exempt Securities 100,000
100,000
U.S. Treasury Bonds 200,000
200,000
Fixed Assets 4,010,000
4,650,000
Less: Acc. Depreciation (2,875,000)
(3,055,000)
Land-Unimproved (tax and GAAP basis) 250,000
0

Prepaid Rent 165,000
168,000
$5,736,500
Accounts Payable 99,000
93,000
Accrued Employee Wages 27,000
31,000
Accrued Officer Bonuses 110,000
145,000
Accrued Employee Vacation 19,000
21,000
Note Payable-First Bank of NC (Credit Line) 536,000
812,000
Note Payable-First Bank of Charlotte 3,655,000
3,139,750
Capital Stock 1,000
1,000
Additional paid-in Capital 99,000
99,000
Retained Earnings 807,000
1,394,750
$5,736,500
Income Statement for the year ending December 31, CY
Item Amount

Income:
Gross Sales $8,936,500
Less: Returns (354,000)
Net Sales 8,582,500
Cost of Goods Sold (4,910,500)
Gross Profit 3,672,000
Gain on Sale of Unimproved Land 600,000
Interest Income -Bank
3,750
Interest Income-U.S. Gov’t 6,000
Municipal Bond Interest Income
2,650
Total Income: 4,284,400
Expenses:
Officer Salaries 212,000
Employee Salaries 542,000
Repairs and Maintenance 12,600
Bad Debts 22,000
Rent 765,000
Payroll Taxes 84,500
Licensing Fees 10,750
Property Taxes 12,500
Interest Expense 175,500
Depreciation 180,000
Office Supplies 5,300
Employee Training 13,750
Key Man Life Insurance 12,000

Advertising 58,500
Employee Benefit Programs 133,000
Meals and Entertainment 3,750
Travel 8,500
Charitable Contribution 25,000
Federal Income Taxes (built-in gains tax) 140,000
State Income Taxes (built-in gain tax) 20,000
Insurance 25,000
Utilities 243,000
Telephone 142,000
Total Expenses: $2,846,650
Net Income: $1,437,750
Tax Return 9: Partnership
Instructions:
Please complete the required federal partnership income tax
return forms for AAA Fast Plumbing for the 2012 tax year,
unless instructed otherwise, based upon the facts presented
below. Also, if required information is missing, use reasonable
assumptions to fill in the gaps.
Michael Rodriguez and Devontae Johnson have been life-long
friends. Both Michael and Devontae started to work for the
same national plumbing repair company immediately after
graduating from technical college. After nearly a decade of
working for that same company, Michael and Devontae decided
to venture out on their own and form their own plumbing
company called AAA Fast Plumbing Repair (AAA). They
formed their business entity as a limited liability company
(LLC). Michael and Devontae each own 50% of the company.
The company has been successful primarily based upon
reputation and the fact that AAA is available 24 hours a day,

seven days a week. Although AAA charges a premium for after
normal business hour calls, most of its competitors will not
perform the services past 9 p.m. and as a result, AAA finds
itself often as one of the only available choices for middle of
the night emergencies.
AAA has several employees and, as a result of implementing
technology solutions to aid in its call dispatch program, AAA
has been able to better expand its service area to now include a
three-county area instead of just one.
Information relating to AAA and its owners is as follows:
Name of Company: AAA Fast Plumbing Repair, LLC
Address: 1456 East Buena Vista Blvd.
Los Angeles, CA 90001 (has not
changed since inception)
Company formed and started: January 1, 2010
Accounting Method: Cash
Tax-year end: December 31
Employer Identification Number: 34-1234567
Members’ Information:
Michael Rodriguez
1515 West Bloomington Street
Los Angeles, CA 90001
SSN- 585-31-6060
Profit/Loss/Capital Membership interest is 50%.
Devontae Johnson
19 East Violet Circle
Los Angeles, CA 90001
SSN-397-29-9239

Profit/Loss/Capital Membership interest is 50%.
Other information:
· AAA is a domestic limited liability company
· Michael and Devontae are not related.
· Michael and Devontae are both U.S. citizens.
· Both Michael and Devontae are managing members.
· AAA has not and did not file a Form 8893 or anything similar
to it this year or in the past
· AAA is not a publicly traded partnership
· During the year no debt was cancelled or forgiven in relation
to AAA.
· AAA is not required to file a Form 8918
· AAA did not have or control a foreign bank account or have
authority over any such financial account
· AAA was not the grantor of or a transferor to a foreign trust
· AAA has never made a Section 754 election
· AAA has never entered into a like-kind exchange or
distributed a tenancy-in-common or other undivided interest in
partnership property
· AAA has never been required to file Form 8858
· Michael and Devontae are both U.S. citizens
· AAA was required to file Form(s) 1099 related to certain
payments it made during the year and those forms were filed on
a timely basis
· AAA was not required to file any Form(s) 5471 during the
year
· Michael is the agreed upon Tax Matters Partner (TMP)
· Both Michael and Devontae are active in the business and
work full-time for AAA
· The debt owed to First National Bank is a non-recourse
obligation and neither Michael nor Devontae have guaranteed
its repayment (see balance sheet below).
· During the year, Michael and Devontae each contributed
$20,000 to the capital of AAA

· AAA does not maintain any inventory. AAA purchases
supplies and has a policy of expensing such purchases as paid
for tax and book purposes
· During the year, Michael and Devontae each received a
$75,000 distribution from each of their respective capital
accounts
Financial Statements:
Balance Sheet
Assets: 1/01/CY
12/31/CY
Cash $ 30,000 $
45,000
Tax-exempt Securities 100,000
100,000
Building 4,000,000
4,000,000
Less: Acc. Depreciation (550,000)
(650,000)
Equipment 2,500,000
3,250,000
Less: Acc. Depreciation (1,250,000)
(1,435,000)
Land 1,000,000 1,000,000
$6,310,000
Note Payable-First National Bank $4,500,000

$4,879,360
Note Payable-Michael Rodriguez 300,000
300,000
Note Payable-Devontae Johnson 200,000
200,000
Capital Account-MR 415,000
465,320
Capital Account-DJ 415,000 465,320
$6,310,000
Income Statement for the year ending December 31, 20CY
Item Amount
Income:
Service Revenue-Cash $ 243,565
Service Revenue-Credit Cards $1,422,710
Consulting Revenue-Cash $ 50,950
Consulting Revenue-Credit Cards $ 155,005
Interest Income-First National Bank $ 1,540
Municipal Bond Interest Income $ 2,500
Total Income: $1,876,270
Expenses:
Employee Salaries $ 515,735
Guaranteed payment-MR $ 50,000
Guaranteed payment-DJ $ 50,000
Repairs and Maintenance-Trucks $ 113,415

Rent $ 35,000
Payroll Taxes $ 41,260
Licensing Fees $ 1,750
Property Taxes $ 77,000
Interest Expense $ 235,000
Depreciation $ 285,000
Office Supplies $ 3,425
Employee Training $ 5,675
Advertising $ 18,850
Plumbing supplies $ 15,125
Meals and Entertainment (prior to disallowance) $ 13,740
Travel $ 4,210
Gasoline $ 158,675
Utilities $ 24,940
Telephone $ 16,830
Total Expenses: $1,665,630
Net Income: $ 210,640

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