Note: This problem is for the 2019 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 2019, the corporation distributed cash dividends of $250,000. Pet Kingdom's financial statements for 2019 are shown below. Income Statement Income Gross sales $5,750,000 Sales returns and allowances Net sales (200,000) $5,550,000 (2,300,000) $3,250,000 43,750 $15,000 20,000 35,000 Cost of goods sold Gross profit Dividends received from stock investments in less-than-20%- owned U.S. corporations Interest income: State bonds Certificates of deposit Total income Expenses Salaries-officers: Janet Morton Kim Wong Salaries-clerical and sales Taxes (state, local, and payroll) Repairs and maintenance $3,328,750 $262,500 262,500 $525,000 725,000 238,000 140,000 Interest expense: $9,000 207,000 216,000 58,000 109,000 106,000 38,000 60,000 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 Total expenses Net income before taxes Federal income tax 40,000 (2,255,000) $1,073,750 (221,734) $852,016 Net income per books 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 Total assets Balance Sheet January 1, 2019 $1,200,000 2,062,500 2,750,000 1,125,000 375,000 400,000 December 31, 2019 $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 -0- 5,455,000 (606,000) 812,500 140,000 $13,714,000 Liabilities and Equity Accounts payable Other current liabilities Mortgages Capital stock Retained earnings Total liabilities and equity Required: January 1, 2019 $2,284,000 175,000 4,625,000 2,500,000 4,130,000 $13,714,000 December 31, 2019 $1,840,711 155,000 4,575,000 2,500,000 4,732,016 $13,802,727 During 2019, Pet Kingdom made estimated tax payments of $56,000 each quarter to the IRS. Prepare a Form 1120 for Pet Kingdom for tax year 2019. If an amount box does not require an entry or the answer is zero, enter "O". Enter all amounts as positive numbers, unless otherwise instructed. If required, round amounts to the nearest dollar. Make realistic assumptions about any missing data. Complete Pet Kingdom's Schedule G for tax year 2019. SCHEDULE G Information on Certain Persons Owning the Corporation's Voting Stock Attach to Form 1120. See instructions. (Form 1120) (Rev. December 2011) Department of the Treasury Internal Revenue Service OMB No. 1545-0123 Name Employer identification number (EIN) 11-1111112 Pet Kingdom, Inc. Part I Certain Entities Owning the Corporation's Voting Stock. (Form 1120, Schedule K, Question 4a). Complete columns (1) through (v) below for any foreign or domestic corporation, partnership (including any entity treated as a partnership), trust, or tax-exempt organization that owns directly 20% or more, or owns, directly or indirectly, 50% or more of the total voting power of all classes of the corporation's stock entitled to vote (see instructions). (1) Name of Entity (ii) Employer Identification (iii) Type of Entity (iv) Country of (v) Percentage Owned in Voting Number (if any) Organization Stock Part II Certain Individuals and Estates Owning the Corporation's Voting Stock. (Form 1120, Schedule K, Question 4b). Complete columns (i) through (iv) below for any individual or estate that owns directly 20% or more, or owns, directly or indirectly, 50% or more of the total voting power of all classes of the corporation's stock entitled to vote (see instructions). (i) Name of Individual or Estate (ii) Identifying Number (if any) (iii) Country of Citizenship (see instructions) (iv) Percentage Owned in Voting Stock Janet Morton 123-45-6788 United States 262,500 Kim Wong 123-45-6787 United States 262,500 x
