Individuals Phil Smith and Kate jones formed P&K Corporation on March 1, 1996 to provide computer consulting services. The company has been an S corporation since its formation, and the stock ownership is divided as follows: 60% to Phil and 40% to Kate. The business code and employer identification numbers are 514519 and 24-3897625, respectively. The business office is located at 3010 East Apple Street, Atlanta, Georgia 30304. Phil and Kate live nearby at 1521 South Elm Street and 3315 East Apple Street, respectively. Their Social security numbers are 403-16-5110 for Phil and 518-72-9147 for Kate. The Calendar year, cash basis corporations December 31, 2014 balance sheet and December 31, 2015 trial balance contain the following information. Balance sheet 12/31/2014 Trial Balance 12/31/2015 Debit Credit Debit Credit Cash.......................................... $ 12,000 $ 22,000 Investments(1).............................. 14,000 14,000 Equipment (2,3)......................... 150,000 190,000 Accumulated depreciation........... $ 38,000 $ 63,500 Notes Payable (3,4)...................... 94,000 117,200 Capital stock................................. 10,000 10,000 Accumulated adjustments account............... 34,000 34,000 Cash distributed to Phil....................... 25,440 Cash distributed to Kate.................. 16,960 Revenues...................... 235,000 Dividend income (1)................... 1,000 Interest income (1)...................... 400 Section 1245 gain (depreciation recapture).......... 3,500 Salary expenses (5).............. 110,000 Rent expense............................. 12,000 Interest expence...................... 16,600 Tax expense (propert & payroll)................. 13,800 Repair expense................ 5,800 Depreciation expense................... 29,200 Health insurance expense (6).................... 1,600 Property insurance expense...................... 1,500 Office supplies expense................... 3,000 Utility expense................... 2,200 Charitable contributions............... 500 Totals..................... $176,000 $176,000 $464,600 $464,600 1. The investment account consists of marketable securities of U.S. corporations and U.S. Treasury Bonds. All the dividends are considered qualified dividends. 2. Equipment was sold May 12,2015 for 9,800. It was purchased new on May 1 of prior year for $10,000 and its basis when sold was $6,300. 3. New equipment was purchased March 1,2015 with $ 5,000 cash and a $ 45,000 three year note payable. The first note payable is March 1, 2016(Note: The correct amount of tax depreciation is included in depreciation expense account in the trial balance) 4. Notes payable are long-term except for $20,000 of the note to be paid next year. 5. Salary expense is composed of salary of $30,000 each to Phil and to Kate and $50,000 to unrelated employees. 6. Health insurance premiums paid were for unrelated employees.

Prepare Form 1065 (including Schedules K, L, and M), and schedule K-1 Complete all nine pages, including responses to all questions. If any necessary information is missing in the problem, assume a logical answer and record it. Do not prepare Schedule K-1 for Kate or other required supplemental forms now. Please prepare Form 1065 including Schedules K,L and M and schedule K-1.