1. Tax Return Problem John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners, respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303. Premium's S election was made on January 15, 2009, its date of incorporation. The following information was taken from the company's 2015 income statement. Premium's book income for the year was $704,574.

Interest income	$ 100,000
Gross sales receipts	2,410,000
Beginning inventory	9,607
Direct labor	(203,102)
Direct materials purchased	(278,143)
Direct other costs	(249,356)
Ending inventory	3,467
Salaries and wages	(442,103)
Officers' salaries ($75,000 each to Parsons and Smith)	(150,000)
Repairs	(206,106)
Depreciation expense, tax and book	(15,254)
Interest expense	(35,222)
Rent expense (operating)	(40,000)
Taxes	(65,101)
Charitable contributions (cash)	(20,000)
Advertising expenses	(20,000)
Payroll penalties	(15,000)
Other deductions	(59,899)

2. A 2015 comparative balance sheet appears below.

4. Premium's accounting firm provides the following additional information.

Cash distributions to shareholders	$100,000
Beginning balance, accumulated adjustments account	$111,148

Line Number		Income Statement	Tax Adjustment Incr. (Dec)	Tax Return
1a	Gross receipts	5750000		5750000
1b	Returns and allownaces	200000		200000
1c	Balance	5550000		5550000
2	Cost of Goods Sold	2300000		2300000
3	Gross profit	3250000		3250000
4	Dividends	43750		43750
5	Interest	35000		35000
6	Gross rents			0
7	Gross royalities			0
8	Capital gains			0
9	Net Gain from Form 4797			0
10	Other income			0
11	Total income	3328750		3328750
12	Compensation of officers	525000		525000
13	Salaries and wages	725000		725000
14	Repairs and maintenance	140000		140000
15	Bad debts			0
16	Rents	109000		109000
17	Taxes and licences	594023		594023
18	Interest	216000		216000
19	Charitable contributions	38000		38000
20	Depreciation	106000		106000
21	Depletion			0
22	Advertising	58000		58000
23	Pension			0
24	Employee benefit plan	60000		60000
25	Domestic production activities			0
26	Other deductions	40000		40000
27	Total deductions	2611023		2611023
28	Taxable income before NOL			0
29a	NOL			0
29b	Special deductions
29c	Add lines 29a and 29b
30	Taxable Income	717727		717727

Using the preceding information, prepare a complete Form 1120S and Schedule K1s for John Parsons and George Smith, both of whom live at 5607 20th Street, Cut and Shoot, TX 77303.