:1164 Refer to the facts in Tax Form'Return Preparation Problem (3:5153. Now assume the company is an S corporation rather than a partnership. Additional facts are as follows: Drs. Bailey and Firth formed the corporation on January 1, 2D13, and the corporation immediately elected S corporation status effective at the beginning of 2013. Upon fomtatinn of the corporation, Dr. Bailey received common stock worth $1.2 million, and Dr. Firth received common stock worth $2.3 million. The balance sheet information is the same as in Table (393 except the equity section is as follows: 11111111111 11111111111 1-11111 11111111 The $18,{it] paid to Dr. Bailey is salary constituting WE wages [instead of a guaranteed payment}. Ignore employment taste (Social Security, etc.} on Dr. Bailey's salary. Qualied production activities income [QPAI] still equals $2.24 million, but employer's W 2 wages allocahle to U.S. production activities equal $1.16 million {because of Dr. Bailey's salary]. The company; being an eligible small passthrough S corporation, uses the small business simplification overall method for reporting these activities [see discussion for Line 12d of Schedule K and Line 12 of Schedule Kl in the Form 112GS instructions}. Use bookmimbers for Schedule L and Schedule Ml in Form 112DS. (IS53 Healthwise Medical Supplies Company is located at 240D Second Street, City, ST 123115. The company is a general parhrership that uses the calendar year and accrual basis for both book and tax purposes. It engages in the development and sale of specialized surgical tools to hospitals. The employer identification number {BIN} is XXEllri. The company formed and began business on January 1, 2813. It has on foreign partners or other foreign dealings. The company is neither a tan shelter nor a publicly traded partnership. The company has made no distributions other than cash, and no changes in ownership have occurred during the current year. Dr. Bailey is the Tart Matters Partner. The partnership makes no special elections. Table Gil3 contains boolt balance sheet information at the beginning and end of the current year, and Table (1:94 presents a book income statement for the current year. lEither information follows