Ccs had ample earnings and profits absorb the distribution

Task:


In
order
to
successfully
complete
this
assignment
you
must:

•Complete
Celebrity
Catering
Service
Inc.’s
(CCS)
Form
1120
and
all
related schedules.
Be
sure
to
attach
schedules
for
any
line
item,
which
indicates
one
is required
on
the
1120.

This
includes
line
items
that
may
require
you
to
create
a schedule
that
identifies
the
various
items
that
are
included
in
a
line
on
the return
these
usually
indicate
“attach
schedule.”

Other
lines
will
indicate specifically
which
schedule
must
be
included
with
the
return.

•If
any
information
is
missing,
use
reasonable
assumptions
to
fill
in
the
gaps
and list
those
assumptions
as
an
attachment.

•Also
list
on
an
attachment
any
tax
positions
that
you
made
in
the
completion
of the
return,
such
as
depreciation
method.

•The
shareholders
also
work
as
officers
for
the
corporation
as
follows:
oRachael
is
the
chief
executive
officer
and
president,
(SS#
231-­‐54-­‐8976).

oPaula
is
the
executive
VP
and
Chief
operating
officer
(SS#798-­‐56-­‐3241).

•CCS
paid
a
dividend
of
$125,000
to
each
of
its
shareholders
on
December
1.

CCS
had
ample earnings
and
profits
(E&P)
to
absorb
the
distribution.

3
|
P a g e

[1]
CCS’S
inventory-­‐related
purchases
during
the
year
were
$321,000
and
direct
labor
of
$875,000.

It
values
its
inventory
based
on
cost
using
FIFO inventory
cost
flow
method.
CCS
must
use
the
263A
method
for
valuing
its
inventory
for
tax
purposes
the
beginning
balance
of
263A
adjustment
is $12,000
and
the
ending
value
is
$11,000.
The
current
year
additional
§263A
costs
are
$85,000
of
the
officer’s
salary.

[2]
CCS’s
dividend
income
came
from
Sinful
Desserts,
Inc.
(SD)
CCS
owned
10,000
shares
of
stock
in
SD
at
the
beginning
of
the
year
this
represented
16% of
SD’s
outstanding
stock.

[7]
Includes
$4,200
for
premiums
paid
on
term
life
insurance
policies
for
which
CCS
is
the
beneficiary.

The
policies
cover
Rachael,
Paula and
Gordon.
Also
included
is
$500
in
parking
tickets.
The
rest
are
regular
miscellaneous,
ordinary
and
necessary
expenses.

4
|
P a g e

-­‐67,500
[1]

[2]
On
October
1,
2019
CCS
sold
100
shares
of
SD
stock
for
$12,000.

It
had
originally
purchased
these
shares
on
April 18,
2010
for
$15,000.

After
the
sale
CCS
owns
15.8
percent
of
SD.

[3]
On
November
12,
2019
CCS
purchased
three
industrial
Hobart
mixers
for
$5,500
each
and
a
Wolf
Convection Double
Stack
Commercial
Oven
for
$67,500.