* Complete 2016 Form 1120, Schedule D, and Schedule G ( if Applicable) ) using the information provided below.

* Neither Form 4562 for depreciation nor Form 4797 for the sale of the equipment is required. Include the amount of tax depreciation and the gain on the equipment sale given in the problem (or determined from the information given in the problem) on the appropriate lines on the first page of Form 1120.

* Assume that AMI does not owe any alternative minimum tax.

* If any information is missing use reasonable assumptions to fill in the gaps.

FACTS

ABC Inc. was formed in 2007 by Allen Smith and Theona Jones. Allen and Theona officially incorporated their store on June 12, 2008. ABC sells music equipment. Allen owns 60 percent of the outstanding common stock of ABC and Thheona owns the remaining 40 percent.

*ABC is located at 333 Abc Way, West Smith, California 94343.

*ABC's EIN # 111-1111111

*ABC' business activity is retail sales. Activity code 451140.

*Alllen is the CEO and president.

* Theona is the executive VP

* Carlson is the secretary.

* All the officers devote 100 percent of their time to the business.

*ABC uses accrual method and has a calendar year-end.

* ABC made for equal estimated tax payments of $70,000 each. Its tax liability last year was $175,000.

* ABC paid a divededn of $ 80,000 to its shareholders on Dec 1.

ABC

INCOME STATEMENT

31-Dec-16

REVENUE FROM SALES

3,420,000

SALES RETURNS AND ALLOWANCES

-40,000

COGS

834,000

GROSS PROFIT

2,546,000

OTHER INCOME

CAPITAL GAINS

8,000

GAIN FROM DISPOSITION OF FIXED ASSETS

2,000

DIVIDEND INCOME

12,000

INTEREST INCOME

15,000

GROSS INCOME

2,583,000

EXPENSES

COMPENSATION

-1,300,000

DEPRECIATION

-20,000

BAD DEBT EXPENSE

-15,000

MEALS AND ENTERTAINMENT

-5,000

MAINTENANCE

-5,000

CHARITABLE DONATIONS

-27,000

PROPERLY TAXES

-45,000

STATE INCOME TAXES

-60,000

OTHER TAXES

-56,000

INTEREST

-62,000

ADVERTISING

-44,000

PROFESSIONAL SERVICES

-32,000

PENSION EXPENSE

-40,000

SUPPLIES

-6,000

OTHER EXPENSES

-38,000

TOTAL EXPENSES

-1,755,000

INCOME BEFORE TAXES

828,000

FEDERAL INCOME TAX EXPENSE

-260,000

NET INCOME AFTER TAXES

568,000

Notes:

1 ABC has a capital loss carryover to this year from last year in the amount of $5,000

Notes:
1 ABC has a capital loss carryover to this year from last year in the amount of $5,000
2. ABC's inventory-realted purchases during the year were $1,134,000. ABC values its inventory
based on cost using the FIFO inventory cost flow method. Assume the rules of 263A do not apply to ABC
3. Of the $15,000 interest income, $2,500 was from a City of Firemont bond that was used to fund public
activities (issued in 2015), $3,500 was from a Pleasanton city bond used to fund private activities ( issued in 2016)
$3,000 was from a U.S. Treasury bond, and the remaining $6,000 was from a money market account.
4. ABC sold equipment for $10,000. It originally purchased the equipment for $12,000 and, through the date
of the sale, had recorded a cumulative total of $4,000 of book depreciation on the asset and a cumulative total
of $6,000 of tax depreciation. For tax purposes, the entire gain was recaptured as ordinary income under 1245
5. ABC's dividend income came from Sailey. ABC owned 15,000 shares of the stock in Sailey's at the beginning of the year.
This represented 15 percent of the Sailey outstanding stock.
6.On July 22, 2016, ABC sold 2,500 shares of its Sailey's Stock for $ 33,000. IT had orignally purchased these shares on April 24, 2012
for $25,000. After the sales, AMI owned 12.5 percent of Sailey's Music.
7. ABC compensation is as follows:
*AlLen $210,000
* Theona $190,000
* Owen $110,000
* Carlson $90,000
* Other $700,000
8. ABC wrote off $10,000 in accounts receivable as uncollectible during the year.
9. Regular tax depreciation was $31,000. None of the depreciation should be claimed on Form 1125A
10. OF the $62,000 of interest expense, $56,000 was from the morthgage on ABC's building and the remainin
$6,000 of interest is from business-related loans.
11.The pension expense is the same for both book and tax purposes.
12. Other expenses include $3,000 for premiums paid on term life insurance policies for which ABC is the beneficiary.
The policies cover the lives of Allen and Theona.
The following are ABC's audited balance sheets as of January 1, 2016, and December 31, 2016.
ABC
Assets	1-Jan	31-Dec
Cash	240,000	171,000
AR	600,000	700,000
Allowance for doubtful accounts	-35,000	-40,000
Inventory	1,400,000	1,700,000
U.S. Goverment bonds	50,000	50,000
State and local bonds	140,000	140,000
Investments in stock	300,000	275,000
Building and other depreciable assets	1,500,000	1,600,000
Accumulated depreciation	-200,000	-216,000
Land	900,000	900,000
Other assets	250,000	270,000
Total assets	5,145,000	5,550,000
Liabilities and Shareholders' Equity
Accuounts payable	250,000	220,000
Other current liabilities	125,000	120,000
Mortgage	800,000	790,000
Other liabilities	200,000	162,000
Capital stock	600,000	600,000
Retained earnings	3,170,000	3,658,000
Total liabilities and shareholders's equity	5,145,000	5,550,000