:11-64 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, 21313, and the corporation immediately elected S corporation status effective at the beginning of 2i}13. Upon formation 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 (193 except the equity section is as follows: Mutants\" Mm The $130,i] paid to Dr. Bailey is salary constituting W2 wages (instead of a guaranteed payment}. Ignore employment taxes (Social Security, etc.} on Dr. Bailey's salary. Qualified pmduction activities income (QPAI) still equals $2.24 million, but employer's W 2 wages allocable to US. production activities equal $1.16 million {because of Dr. Bailey's salary). The company, being an eligible snail 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 112=S instructions}. Use booknumhers for Schedule L and Schedule Ml in Form 112S. (1958 Healthwise Medical Supplies Company is located at 2413i] Second Street, City, ST 12345. The company is a general partnership that uses the calendar year and accrual basis for both book and tart purposes. It engages in the development and sale of specialized surgical tools to hospitals. The employer identication number {BIN} is XX2l14. The company formed and began business on January 1, 2013. It has no foreign partners or other foreign dealings. The company is neither a tax 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 "rs: Matters Partner. The partnership makes no special elections. Table EdiS contains book balance sheet information at the beginning and end of the current year, and Table (3:94 presents a book income statement for the current year. lDtber information follows