John and Madline formed the M& 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 John and 40% to Madline. The business code and employer identification numbers are 514519 and 24-3897625, respectively. The business office is located at 126 Beacon Street, Dallas, Texas 70525. Phil and Kate live nearby at 1521 Beacon drive and 455 john Street, respectively. Their Social Security Numbers are 403-16-5110 for John and 518-72-9147 for Madeline. The calendar year, cash basis corporations December 31, 2019 balance sheet and December 31, 2020 trial balance (both prepared for tax purposes) contain the following information: Balance Sheet Trial Balance 12/31/2019 12/31/2020 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 Recourse notes payable (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) (2) 3,500 Salary expense (5) 110,000 Rent expense 12,000 Interest expense 16,600 Tax expense (property and payroll) 13,800 Repair expense 5,800 MACRS depreciation 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 Total 176,000 176,000 464,600 464,600 Notes: 1. The investment account consists of marketable securities of U.S. corporations and U.S. Treasury Bonds. All of the dividends are considered qualified dividends. 2. Equipment was sold May 12, 2020 for $9,800. It was purchased new on May 1 of the prior year for $10,000 and its basis when sold was $6,300. 3. New equipment was purchased March 1, 2020 with $5,000 cash and a $45,000 three-year note payable. The first note payment is March 1, 2021. (Note: the correct amount of tax depreciation is included in the depreciation expense account in the trial balance). 4. Notes payable are long-term except for $20,000 of the recourse notes 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. Task: Prepare a 2020 Form 1120-S. Complete all pages, including responses to all questions. If any necessary information is missing in the problem, assume a logical answer and record it.