On November 1, 2007, 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 2016, the corporation distributed cash dividends of $250,000.

Pet Kingdom's financial statements for 2016 follow.

Income Statement

* Depreciation for tax purposes is $136,000. You are not provided enough detailed data to complete a Form 4562 (depreciation). If you solve this problem using H&R Block Tax Software, enter the amount of depreciation on line 20 of Form 1120.
Balance Sheet

During 2016, Pet Kingdom made estimated tax payments of $90,000 each quarter to the IRS. Prepare a Form 1120 for Pet Kingdom for tax year 2016. Suggested software: H&R Block Tax Software?

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Income $5,750,000 Gross sales Sales returns and allowances (200,000) $5,550,000 Net sales Cost of goods sold Gross profit (2,300,000) $3,250,000 Dividends received from stock investments in less-than- 20%-owned U.S. corporations 43,750 Interest income: $15,000 State bonds Certificates of deposit 20,000 35,000 Total income $3,328,750 Expenses Salaries-officers: Janet Morton $262,500 Kim Wong 262,500 $525,000 Salaries-derical and sales 725,000 Taxes (state, local, and payroll) Repairs and maintenance 238,000 140,000 Interest expense: Loan to purchase state bonds $ 9,000 Other business loans 207,000 216,000 Advertising Rental expense 58,000 109,000 Depreciation* 106,000 Charitable contributions 38,000 Employee benefit programs Premiums on term life insurance policies on lives of Janet Morton and Kim 60,000 Wong; Pet Kingdom is the designated benefidary 40,000 Total expenses (2,255,000) $1,073,750 Net income before taxes Federal income tax (356,023) Net income per books $ 717,727