Note: This problem is for the 2018 tax year. On November 1, 2008, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows: Pet Kingdom's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211; and its e-mail address is petkingdom@pki.com. The employer identification number is 11-1111112, and the principal business activity code is 453910. Janet and Kim each own 50% of the common stock; Janet is president and Kim is vice president of the company. No other class of stock is authorized . Both Janet and Kim are full-time employees of Pet Kingdom. Janet's Social Security number is 123-45-6788, and Kim's Social Security number is 123-45-6787. Pet Kingdom is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. Pet Kingdom uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes. . During 2018, the corporation distributed cash dividends of $250,000. Pet Kingdom's financial statements for 2018 are shown below. Income Statement Income Gross sales Sales returns and allowances Net sales Cost of goods sold Gross profit Dividends received from stock investments in less-than-20%- $5,750,000 (200,000) $5,550,000 (2,300,000) $3,250,000 $3,250,000 Gross profit Dividends received from stock investments in less-than-20%- owned U.S. corporations Interest income: 43,750 State bonds $15,000 20,000 Certificates of deposit Total income 35,000 $3,328,750 Expenses $262,500 262,500 $525,000 725,000 238,000 140,000 $9,000 207,000 Salaries-officers: Janet Morton Kim Wong Salaries-clerical and sales Taxes (state, local, and payroll) Repairs and maintenance Interest expense: Loan to purchase state bonds Other business loans Advertising Rental expense Depreciation* Charitable contributions Employee benefit programs Premiums on term life insurance policies on lives of Janet Morton and Kim Wong; Pet Kingdom is the designated beneficiary 216,000 58,000 109,000 106,000 38,000 60,000 40,000 Total expenses Net income before taxes Federal income tax Net income per books (2,255,000) $1,073,750 (221,734) $852,016 * Depreciation for tax purposes is $136,000. You are not provided enough detailed data to complete a Form 4562 (depreciation). If you solve this problem using Intuit ProConnect, enter the amount of depreciation on line 20 of Form 1120. Assets Cash Trade notes and accounts receivable Inventories Stock investment State bonds Certificates of deposit Prepaid Federal tax Buildings and other depreciable assets Accumulated depreciation Land Other assets Balance Sheet January 1, 2018 $1,200,000 2,062,500 2,750,000 1,125,000 375,000 400,000 -0- 5,455,000 (606,000) 812,500 140,000 $13,714,000 December 31, 2018 $1,039,461 2,147,000 3,030,000 1,125,000 375,000 400,000 2,266 5,455,000 (712,000) 812,500 128,500 $13,802,727 Total assets Liabilities and Equity Accounts payable January 1, 2018 $2,284,000 December 31, 2018 $1,840,711 Total assets $13,714,000 $13,802,727 December 31, 2018 Liabilities and Equity Accounts payable Other current liabilities Mortgages Capital stock Retained earnings Total liabilities and equity Required: January 1, 2018 $2,284,000 175,000 4,625,000 2,500,000 4,130,000 $13,714,000 $1,840,711 155,000 4,575,000 2,500,000 4,732,016 $13,802,727 During 2018, Pet Kingdom made estimated tax payments of $56,000 each quarter to the IRS. Prepare a Form 1120 for Pet Kingdom for tax year 2018. If an amount box does not require an entry or the answer is zero, enter "0". Enter all amounts as positive numbers, unless otherwise instructed. If required, round amounts to the nearest dollar. Make realistic assumptions about any missing data. During this tax year, did the corporation pay dividends (other than stock dividends and distributions in exchange for stock) in excess of the corporation's current and accumulated earnings and profits? See sections 301 and 316 If "Yes," file Form 5452, Corporate Report of Nondividend Distributions. See the instructions for Form 5452. If this is a consolidated return, answer here for the parent corporation and on Form 851 for each subsidiary. At any time during the tax year, did one foreign person own, directly or indirectly, at least 25% of the total voting power of all classes of the corporation's stock entitled to vote or at least 25% of the total value of all classes of the corporation's stock?... For rules of attribution, see section 318. If "Yes,"enter: (a) Percentage owned ------ and (b) Owner's country ----- (c) The corporation may have to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Enter the number of Forms 5472 attached Check this box if the corporation issued publicly offered debt instruments with original issue discount ......... If checked, the corporation may have to file Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. 9 Enter the amount of tax-exempt interest received or accrued during the tax years ... 10 Enter the number of shareholders at the end of the tax year (if 100 or fewer) If the corporation has an NOL for the tax year and is electing to forego the carryback period, check here (see instructions) If the corporation is filing a consolidated return, the statement required by Regulations section 1.1502-21(b)(3) must be attached or the election will not be valid. 12 Enter the available NOL carryover from prior tax years (do not reduce it by any deduction reported on page 1, line 29a.) ............................................ .... Schedule L Balance Sheets per Books Beginning of tax year End of tax year Assets (a) (b) (c) (d) 1 Cash... 1,200,000 1,039,461 2a Trade notes and accounts receivable ...... 2,062,500 2,147,000 b Less allowance for bad debts ...... 2,062,500 2,147,000 3 Inventories .................. 2,750,000 3,030,000 4 U.S. government obligations ............. 5 Tax-exempt securities (see instructions).... 216,000 x 6 Other current assets (attach statement).... 1,525,000 1,527,266 7 8 9 Loans to shareholders ................. Mortgage and real estate loans .......... Other investments (attach statement)..... 10a Buildings and other depreciable assets ..... 5,455,000 5,455,000 b Less accumulated depreciation .......... 606,000 4,849,000 712,000 4,743,000 11a Depletable assets ........... b Less accumulated depletion ............ 12 Land (net of any amortization) .......... 812,500 812,500 13a Intangible assets (amortizable only)...... b Less accumulated amortization ........... Note: This problem is for the 2018 tax year. On November 1, 2008, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows: Pet Kingdom's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211; and its e-mail address is petkingdom@pki.com. The employer identification number is 11-1111112, and the principal business activity code is 453910. Janet and Kim each own 50% of the common stock; Janet is president and Kim is vice president of the company. No other class of stock is authorized . Both Janet and Kim are full-time employees of Pet Kingdom. Janet's Social Security number is 123-45-6788, and Kim's Social Security number is 123-45-6787. Pet Kingdom is an accrual method, calendar year taxpayer. Inventories are determined using FIFO and the lower of cost or market method. Pet Kingdom uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes. . During 2018, the corporation distributed cash dividends of $250,000. Pet Kingdom's financial statements for 2018 are shown below. Income Statement Income Gross sales Sales returns and allowances Net sales Cost of goods sold Gross profit Dividends received from stock investments in less-than-20%- $5,750,000 (200,000) $5,550,000 (2,300,000) $3,250,000 $3,250,000 Gross profit Dividends received from stock investments in less-than-20%- owned U.S. corporations Interest income: 43,750 State bonds $15,000 20,000 Certificates of deposit Total income 35,000 $3,328,750 Expenses $262,500 262,500 $525,000 725,000 238,000 140,000 $9,000 207,000 Salaries-officers: Janet Morton Kim Wong Salaries-clerical and sales Taxes (state, local, and payroll) Repairs and maintenance Interest expense: Loan to purchase state bonds Other business loans Advertising Rental expense Depreciation* Charitable contributions Employee benefit programs Premiums on term life insurance policies on lives of Janet Morton and Kim Wong; Pet Kingdom is the designated beneficiary 216,000 58,000 109,000 106,000 38,000 60,000 40,000 Total expenses Net income before taxes Federal income tax Net income per books (2,255,000) $1,073,750 (221,734) $852,016 * Depreciation for tax purposes is $136,000. You are not provided enough detailed data to complete a Form 4562 (depreciation). If you solve this problem using Intuit ProConnect, enter the amount of depreciation on line 20 of Form 1120. Assets Cash Trade notes and accounts receivable Inventories Stock investment State bonds Certificates of deposit Prepaid Federal tax Buildings and other depreciable assets Accumulated depreciation Land Other assets Balance Sheet January 1, 2018 $1,200,000 2,062,500 2,750,000 1,125,000 375,000 400,000 -0- 5,455,000 (606,000) 812,500 140,000 $13,714,000 December 31, 2018 $1,039,461 2,147,000 3,030,000 1,125,000 375,000 400,000 2,266 5,455,000 (712,000) 812,500 128,500 $13,802,727 Total assets Liabilities and Equity Accounts payable January 1, 2018 $2,284,000 December 31, 2018 $1,840,711 Total assets $13,714,000 $13,802,727 December 31, 2018 Liabilities and Equity Accounts payable Other current liabilities Mortgages Capital stock Retained earnings Total liabilities and equity Required: January 1, 2018 $2,284,000 175,000 4,625,000 2,500,000 4,130,000 $13,714,000 $1,840,711 155,000 4,575,000 2,500,000 4,732,016 $13,802,727 During 2018, Pet Kingdom made estimated tax payments of $56,000 each quarter to the IRS. Prepare a Form 1120 for Pet Kingdom for tax year 2018. If an amount box does not require an entry or the answer is zero, enter "0". Enter all amounts as positive numbers, unless otherwise instructed. If required, round amounts to the nearest dollar. Make realistic assumptions about any missing data. During this tax year, did the corporation pay dividends (other than stock dividends and distributions in exchange for stock) in excess of the corporation's current and accumulated earnings and profits? See sections 301 and 316 If "Yes," file Form 5452, Corporate Report of Nondividend Distributions. See the instructions for Form 5452. If this is a consolidated return, answer here for the parent corporation and on Form 851 for each subsidiary. At any time during the tax year, did one foreign person own, directly or indirectly, at least 25% of the total voting power of all classes of the corporation's stock entitled to vote or at least 25% of the total value of all classes of the corporation's stock?... For rules of attribution, see section 318. If "Yes,"enter: (a) Percentage owned ------ and (b) Owner's country ----- (c) The corporation may have to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Enter the number of Forms 5472 attached Check this box if the corporation issued publicly offered debt instruments with original issue discount ......... If checked, the corporation may have to file Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. 9 Enter the amount of tax-exempt interest received or accrued during the tax years ... 10 Enter the number of shareholders at the end of the tax year (if 100 or fewer) If the corporation has an NOL for the tax year and is electing to forego the carryback period, check here (see instructions) If the corporation is filing a consolidated return, the statement required by Regulations section 1.1502-21(b)(3) must be attached or the election will not be valid. 12 Enter the available NOL carryover from prior tax years (do not reduce it by any deduction reported on page 1, line 29a.) ............................................ .... Schedule L Balance Sheets per Books Beginning of tax year End of tax year Assets (a) (b) (c) (d) 1 Cash... 1,200,000 1,039,461 2a Trade notes and accounts receivable ...... 2,062,500 2,147,000 b Less allowance for bad debts ...... 2,062,500 2,147,000 3 Inventories .................. 2,750,000 3,030,000 4 U.S. government obligations ............. 5 Tax-exempt securities (see instructions).... 216,000 x 6 Other current assets (attach statement).... 1,525,000 1,527,266 7 8 9 Loans to shareholders ................. Mortgage and real estate loans .......... Other investments (attach statement)..... 10a Buildings and other depreciable assets ..... 5,455,000 5,455,000 b Less accumulated depreciation .......... 606,000 4,849,000 712,000 4,743,000 11a Depletable assets ........... b Less accumulated depletion ............ 12 Land (net of any amortization) .......... 812,500 812,500 13a Intangible assets (amortizable only)...... b Less accumulated amortization