Falcons Corporation (an S Corporation) Income Statement December 31, Year 1
	Year 1	Year 2
Sales revenue	$300,000	$430,000
Cost of goods sold	(40,000)	(60,000)
Salary to owners Julio and Milania	(40,000)	(80,000)
Employee wages	(25,000)	(50,000)
Depreciation expense	(20,000)	(40,000)
Section 179 expense	(30,000)	(50,000)
Interest income	12,000	22,500
Municipal bond income	1,500	4,000
Government fines	0	(2,000)
Overall net income	$158,500	$174,500
Distributions	$ 30,000	$ 50,000

LO 22-3 Julio and Milania are owners of Falcons Corporation, an S corporation. They each own 50 percent of Falcons Corporation. In year 1, Julio and Milania received distributions of $20,000 and $10,000, respectively, from Falcons Corporation.

1. What amount of ordinary income and separately stated items are allocated to them for year 1 based on the information above?

2. Complete Falcons' Form 1120S, Schedule K for year 1.

3. Complete Julio's 1120S, Schedule K-1 for year 1.