Healthwise Medical Supplies Company is located at 2400 Second Street, City, ST 12345. The company is a general partnership 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 (EIN) is XX-2018016. The com-pany formed and began business on January 1, 2015. 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 Tax Matters Partner. The partner-ship makes no special elections. Table C:9-3 contains book balance sheet information at the beginning and end of the current year, and Table C:9-4 presents a book income state-ment for the current year. Other information follows:Information on Partnership Formation:Two individuals formed the partnership on January 1, 2015: Dr. Leisa H. Bailey (1200 First Pike, City, ST 12345) and Dr. Thomas J. Firth (3600 Third Blvd., City, ST 54321). For a 30% interest, Dr. Bailey contributed $600,000 cash. She is an active general partner who manages the company. For a 70% interest, Dr. Firth contributed $1.16 million cash and 1,000 shares of Fastgrowth, Inc. stock having, at the time of contribution, a $240,000 fair market value (FMV) and a $48,000 adjusted basis. Dr. Firth is an active general part-ner who designs and develops new products. For book purposes, the company recorded the contribution of stock at fair market value. Inventory and Cost of Goods Sold (Form 1125-A):The company uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should be reflected in Schedule A. No other costs or expenses are allocated to cost of goods sold. Note: the company is exempt from the uniform capitalization (UNICAP) rules because average gross income for the previous year was less than $10 million [Sec. 263A(b)(2)(B)].Line 9 (a)Check (ii)(b)(d)Not applicable(e) & (f)NoCapital Gains and Losses (Schedule D):The company sold all 1,000 shares of the Fastgrowth, Inc. common stock on July 2, 2016, for $720,000. Dr. Firth acquired the stock on January 2, 2013, for $48,000 and contrib-uted the stock to the company on January 1, 2015, when its FMV was $240,000. . TABLE C:9-3Healthwise Medical Supplies CompanyBook Balance Sheet InformationJanuary 1, 2016December 31, 2016AccountDebitCreditDebitCreditCash$ 233,500$ 143,450Accounts receivable540,000600,000Inventory1,000,0001,200,000Investment in municipal bonds40,00040,000Investment in corporate stock240,0000Equipment1,000,0001,400,000Accumulated depreciation Equipment $ 142,900 $ 787,800Accounts payable100,000130,000Notes payable (short-term)750,000150,000Accrued payroll expenses3,5005,250Capital account balances:Dr. Leisa H. Bailey (30%)617,130693,120Dr. Thomas J. Firth (70%) 1,439,970 1,617,280Totals$3,053,500$3,053,500$3,383,450$3,383,450TABLE C:9-4Healthwise Medical Supplies CompanyBook Income Statement 2016Sales$5,000,000Returns and allowances (250,000)Net sales$4,750,000Beginning inventory$1,000,000Purchases2,000,000Ending inventory (1,200,000)Cost of goods sold (1,800,000)Gross profit$2,950,000Expenses:Depreciation (including Sec. 179)$ 644,900Repairs32,500General insurance35,000Guaranteed payment (to Dr. Bailey)100,000Other salaries700,000Travel20,000Utilities60,000Rent expense150,000Advertising expense30,000Professional fees50,000Employment taxes70,000Business interest expense36,000Investment expenses3,600Investment interest expense4,500Meals and entertainment15,000Charitable contributions (cash) 40,000Total expenses(1,991,500)Other income: Interest on municipal bonds1,600Dividend income13,200Gain on stock sale: Selling price$720,000 Book value (240,000) Book gain 480,000Net income per books$1,453,300 Fixed Assets and Depreciation (Form 4562):The company acquired the equipment on January 2, 2015, and placed it in service on that date. The equipment, which originally cost $1 million, is MACRS seven-year property. The company did not elect Sec. 179 expensing in the acquisition year and elected out of bonus depreciation. The company claimed the following depreciation on this property: YearBook and Regular Tax Depreciation AMT Depreciation2015$142,900$107,1002016244,900191,300On March 1, 2016, the company acquired and placed in service additional equipment costing $400,000. The company made the Sec. 179 expensing election for the entire cost of this new equipment. No depreciation or expensing is reported on Schedule A. Other Information:services.December 1 of the current year.and a $840,000 cash distribution to Dr. Firth.bonds. Assume that no expenses of the company are allocable to the tax-exempt inter-est generated from the municipal bonds.W-2 wages allocable to U.S. production activities equal $700,000. The company, being an eligible small pass-through partnership, uses the small business simplification over-all method for reporting these activities (see discussion for Line 13d of Schedule K and Line 13 of Schedule K-1 in the Form 1065 instructions).book numbers for Item L of Schedule K-1, and check the box for Sec. 704(b) book.-ership percentages.Required: Prepare the 2016 partnership tax return (Form 1065), including the follow-ing additional schedules and forms: Schedule D, Form 4562, and Schedule K-1.Optional: Prepare a schedule for each partners basis in his or her partnership interest. At January 1, 2016, Baileys basis was $873,180, and Firths was $1,845,420.