Tax Return; Course Project: Corporation Tax Return
Problem # 2 “Blue Catering Service Inc.’s (BCS)
2016 Form 1120” on Pages C-16 till C-18.
Required: Complete Blue Catering Service Inc.’s (BCS) 2016 Form 1120, Schedule D, and
Schedule G (if applicable) using the information provided below. Form 4562 for depreciation is not required. Include the amount of tax depreciation
given in the problem 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 Web site
( The instructions can be helpful in completing the forms. Facts:
Cara Siler, Janna Funk, and Valerie Cloward each own one-third of the common stock of
Blue Catering Services Inc. (BCS). BCS was incorporated on February 4, 2009. It has only
one class of stock outstanding and operates as a C corporation for tax purposes. BCS caters
all types of social events throughout southern California. BCS is located at 540 Waverly Way, San Diego, California 92101. BCS’s Employer Identification Number is 38-4743474. BCS’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: Course Tax Return – Course Project – Spring 2017Page 1 o Cara is the chief executive officer and president (Social Security number 23154-8976).
o Janna is the executive vice president and chief operating officer (Social
Security number 798-56-3241).
o 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. If it 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 and profits (E&P) to absorb the distribution. Course Tax Return – Course Project – Spring 2017Page 2 The following is BCS’s audited income statement for 2016: Course Tax Return – Course Project – Spring 2017Page 3 Notes:
1 BCS’s inventory-related purchases during 2016 were $360,000. It values its
inventory based on cost using 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 public activities (issued in 2013), $1,750 was from an Oceanside city bond Course Tax Return – Course Project – Spring 2017Page 4 used to fund private activities (issued in 2012), $1,000 was from a U.S. Treasury
bond, and the remaining $6,000 was from a money market account.
1 BCS’s dividend income came from Clever Cakes Inc. (CC). BCS owned 10,000
shares of the stock in Clever Cakes at the beginning of the year. This represented 10
percent of SSM outstanding stock. 1 On October 1, 2016, BCS sold 1,000 shares of its CC stock for $25,000. It had
originally purchased these shares on April 18, 2011, for $40,000. After the sale, BCS
owned 9 percent of CC. 1 BCS’s compensation is as follows:
o Cara $150,000
o Janna $140,000
o Valerie $130,000
o Other $530,000 1 BCS wrote off $25,000 in accounts receivable as uncollectible during the year. 1 BCS’s regular tax depreciation was $28,000. None of the depreciation should be
claimed on Form 1125A. 1 The $5,000 interest expense was from a business loan. 1 Other expenses include $6,000 for premiums paid on term life insurance policies for
which BCS is the beneficiary. The policies cover the lives of Cara, Janna, and
Valerie. Course Tax Return – Course Project – Spring 2017Page 5 The following are BCS’s audited balance sheets as of January 1, 2016, and December 31,