Scarlet Furniture Corporation, an accrual-method taxpayer, retails custom office furniture. On January 1 of the current year, Peter Marlin and John Tanner incorporated Scarlet Furniture Corporation. Peter transferred $350,000 cash for 70% of Scarlet’s outstanding stock, and John transferred $150,000 cash for 30% of the outstanding stock. Scarlet generated the following financial statements at the end of its first year of operations:

Scarlet Corporation’s Balance Sheet
Assets
Cash.................................................. $ 91,400
Inventory............................................. 48,000
Other Current Assets......................... 50,000
Office Equipment............................. 170,000
Building.............................................. 250,000
Accumulated Depreciation.............. (20,000)
Land................................................... 550,000
Total Assets.................................. $1,139,400

Liabilities and Owner’s Equity
Accrued Expenses.......................... $ 100,000
Long Term Debt................................. 400,000
Common Stock................................... 500,000
Retained Earnings.............................. 139,400
Total Liabilities and Owners’ Equity $1,139,400
Scarlet Corporation’s Income Statement
Revenues.......................................... $650,000
Costs of Goods Sold.......................... 100,000
Gross Income................................... $550,000
Advertising Expense............................ 40,000
Depreciation Expense......................... 20,000*
Miscellaneous Expense....................... 10,600**
Office Supplies........................................ 5,000
Property Tax Expense.......................... 60,000
Wages & Salaries Expense................. 135,000***
Warranty Expense................................. 10,000****
Operating Income............................. $269,400
Interest Expense.................................... 30,000
Federal Income Tax Expense............. 100,000
Net Income......................................... $139,400
*Depreciation expense for tax purposes was $120,441 because Scarlet made a Sec. 179 election to expense $105,000 of the cost of the equipment purchased this year.
**Miscellaneous expense relates to a $600 penalty fee as a result of a breached customer contract and a $10,000 fine assessed by OSHA for hazardous conditions in its storage facility.
***Wages and salary expense includes Peter’s salary of $40,000 and the accrual of $15,000 of bonuses payable to Peter which Scarlet actually paid on February 10 of the following year.
****The actual expenditure paid for warranty repairs during the year is $2,000.

Scarlet does not make any sales or purchases on account. Scarlet’s employer identification number is 12-34567. Its address is 789 Presidential Way, Seattle, Washington 54789. Peter Marlin’s Social Security number is 555-66-8888. During the current year, the Corporation made federal estimated income tax payments of $50,000. Prepare a Form 1120 for the initial return for Scarlet.