"Is the CPA making a mistake in putting this business income on a schedule C?"

Yes. You cannot be in That Specific Business two different ways. Either this is a Corporation or it is the Sole Proprietorship. The business cannot be Both at the same time.

"It is also possible that an S-Corp has gross revenue from past projects like a film release. So if there is residual gross income that is not connected to the current officers / owner/ shareholder's time how is this classified as income?"

Royalty income still is income. If it belongs to the Corporation, that makes it Corporate income. It doesn't have to be connected with any Person. Corporate Income means it is part of the business.

You seem to be overlooking that the corporation cannot run itself; it hires one or more employees, who will run the corporation, do its business, and generally keep it "in" business. Whether or not there also are new products or services performed each year, is part of Operations.

"what is the penalty for filing Payroll at the end of December for Q1, Q2, Q3, Q4?"

You would typically do one Year End payroll, perhaps. For example, right now, if all of 2020 was overlooked. your Next payroll will include all Year To Date. Or, sure, you could go back by backdating and do 1 per quarter. For any payroll being done late, there is interest and penalties. You can look that up through the web. There are some ways to apply for penalty waiver, too.

"How does estimated quarterly payments factor into this if the s-corp officer has already paid all estimated taxes thinking he is self employed per the CPA's recommendation."

Estimated 1040 is a Personal Income tax issue. I would (and do) submit a W4 showing no income tax withholding, which allows those payments to stand as they are. What you need to do is catch up for FICA, though (and FUTA/SUTA). Because 1040ES is "these stand as credits against all personal income tax total owed" you might not have an overpayment condition by year end. It depends on the Corp return as a pass-through entity, as well as their other Personal Life financial issues. No one on the internet can answer that part. If they don't intend to continue 1040ES, they need to determine their W4 Withholding requirement, then. And they still might need to send 1040ES, due to those other Personal Life financial issues. Not filing a Sched C does not eliminate the possibility that a person falls in the 1040ES requirement category. Just like filing a Sched C won't require 1040ES, as long as W2 withholding helps meet their prepayment requirement.

The things you asked are not requirements against each other; they are part of the full picture.

"How do do Payroll when the State Labor and Withholding office states there is a 30-90 day delay in getting the state # to even file set up Payroll and with holding /unemployment."

Well, the sooner you start, the sooner you are in compliance.

"Can this be done in Jan or Feb retroactively?"

Not for the Prior year without also being considered Late. That's because Payroll is based on the Pay Date. Not the Pay Period. If I pay you in Jan 2021 for all of 2020, that still is 2021 payroll.