On November 1, 2006, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows:

• Pet Kingdom's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211; and its e-mail address is petkingdom@pki.com.

• The employer identification number is 11-1111111, and the principal business activity code is 453910.

• Janet and Kim each own 50% of the common stock; Janet is president and Kim is vice president of the company. No other class of stock is authorized.

• Both Janet and Kim are full-time employees of Pet Kingdom. Janet's Social Security number is 123-45-6789, and Kim's Social Security number is 987-65-4321.

• Pet Kingdom is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. Pet Kingdom uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes.

• During 2015, the corporation distributed cash dividends of $250,000. Pet Kingdom's financial statements for 2015 follow.

Income Statement

Balance Sheet

During 2015, Pet Kingdom made estimated tax payments of $90,000 each quarter to the IRS. Prepare a Form 1120 for Pet Kingdom for tax year 2015. Suggested software: H&R BLOCK Tax Software.

Transcribed Image Text:

Income Gross sales Sales returns and allowances Net sales Cost of goods sold Gross profit Dividends received from stock $5,750,000 (200,000) $5,550,000 2,300,000) 53,250,000 investments in less-than- 20%-owned US corporations 43,750 Interest income: State bonds Certificates of deposit $15,000 20,000 35,000 53,328,750 Total income Expenses Salaries-officers: $262,500 262,500 Janet Morton Kim Wong Salaries-clerical and sales Taxes (state, local, and payroll) Repairs and maintenance Interest expense $525,000 725,000 238,000 140,000 Loan to purchase state bonds Other business loans $ 9,000 207,000 Rental expense Depreciation* Charitable contributions Employee benefit programs Premiums on term life insurance policies 216,000 58,000 109,000 106,000 38,000 60,000 on lives of Janet Morton and Kim Wong; Pet Kingdom is the 40,000 designated beneficiary Total expenses Net income before taxes Federal income tax Net income per books (2,255,000) $1,073,750 (356,023) 717,727 Depreciation for tax purposes is $136,000. You are not provided enough detailed data to comple te a Form 4562 (depredation. If you solve this problem using H&R BLOCK Tax Software, enter the amount of depreciation on line 20 of Form 1120. January 1, 2015 December 31, 2015 Trade notes and accounts receivable Stock investment Certificates of deposit Prepaid Federal tax Buildings and other depreciable assets Accumulated depreciation Liabilities and Equity Accounts payable Other current liabilities Mortgages 5 December 31, 2015 Total liabilities and equity