Note: This problem is for the 2020 tax year.

On November 1, 2009, 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 2020, the corporation distributed cash dividends of $250,000.

Pet Kingdom's financial statements for 2020 are shown below.

Income Statement

Income

Gross sales

$5,750,000

Sales returns and allowances

(200,000)

Net sales

$5,550,000

Cost of goods sold

(2,300,000)

Gross profit

$3,250,000

Dividends received from stock

investments in less-than-20%- owned U.S. corporations

43,750

Interest income:

State bonds

$15,000

Certificates of deposit

20,000

35,000

Total income

$3,328,750

Expenses

Salariesofficers:

Janet Morton

$262,500

Kim Wong

262,500

$525,000

Salariesclerical and sales

725,000

Taxes (state, local, and payroll)

238,000

Repairs and maintenance

140,000

Interest expense:

Loan to purchase state bonds

$9,000

Other business loans

207,000

216,000

Advertising

58,000

Rental expense

109,000

Depreciation*

106,000

Charitable contributions (cash)

38,000

Employee benefit programs

60,000

Premiums on term life insurance

policies on lives of Janet Morton and Kim Wong; Pet Kingdom is the designated beneficiary

40,000

Total expenses

(2,255,000)

Net income before taxes

$1,073,750

Federal income tax

(221,734)

Net income per books

$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.

Balance Sheet
Assets	January 1, 2020				December 31, 2020
Cash		$1,200,000				$1,039,461
Trade notes and accounts receivable		2,062,500				2,147,000
Inventories		2,750,000				3,030,000
Stock investment		1,125,000				1,125,000
State bonds		375,000				375,000
Certificates of deposit		400,000				400,000
Prepaid Federal tax		0				2,266
Buildings and other depreciable assets		5,455,000				5,455,000
Accumulated depreciation		(606,000)				(712,000)
Land		812,500				812,500
Other assets		140,000				128,500
Total assets		$13,714,000				$13,802,727
Liabilities and Equity	January 1, 2020				December 31, 2020
Accounts payable		$2,284,000				$1,840,711
Other current liabilities		175,000				155,000
Mortgages		4,625,000				4,575,000
Capital stock		2,500,000				2,500,000
Retained earnings		4,130,000				4,732,016
Total liabilities and equity		$13,714,000				$13,802,727

Required:

During 2020, Pet Kingdom made estimated tax payments of $56,000 each quarter to the IRS. Prepare Pet Kingdom's corporate tax return for tax year 2020 using Form 1120 (and any other appropriate forms and schedules).

• 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.

6 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. 7 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 8 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 year 10 Enter the number of shareholders at the end of the tax year (if 100 or fewer) 11 If the corporation has an NOL for the tax year and is electing to forego the carryback period, check here (see instructions) D 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.) ... Form 1120 (2020) Pet Kingdom, Inc. 11-1111112 Page 6 ScheduleL Balance Sheets per Books Beginning of tax year End of tax year Assets (a) (b) (c) (d) 1 Cash 2a Trade notes and accounts receivable b Less allowance for bad debts 3 Inventories. 4 U.S. government obligations . 5 Tax-exempt securities (see instructions) 6 Other current assets (attach statement) See st. 1 7 Loans to shareholders .. 8 Mortgage and real estate loans 9 Other investments (attach statement) 10a Buildings and other depreciable assets b Less accumulated depreciation 11a Depletable assets .. b Less accumulated depletion 12 Land (net of any amortization) 13a Intangible assets (amortizable only) b Less accumulated amortization. 14 Other assets (attach statement) See st. 2 15 Total assets. Liabilities and Shareholders' Equity 16 Accounts payable .. 17 Mortgages, notes, bonds payable in less than 1 year 18 Other current liabilities (attach stmt) See st. 3 19 Loans from shareholders 20 Mortgages, notes, bonds payable in 1 year or more Other liabilities (attach statement) 21 22 Capital stock: a Preferred stock b Common stock 23 24 Additional paid-in capital .. Retained earnings - Appropriated (att stmt) Retained earnings Unappropriated 25 26 Adjmt to shareholders' equity (att stmt) 27 Less cost of treasury stock .. 28 Total liabilities and shareholders' equity Schedule M-1 Reconciliation of Income (Loss) per Books With Income per Return Note: The corporation may be required to file Schedule M-3. See instructions. 1 Net income (loss) per books 7 Income recorded on books this year not included on this return (itemize): 2 Federal income tax per books Tax-exempt interest 3 Excess of capital losses over capital gains 4 Income subject to tax not recorded on books this year (itemize): 8 Deductions on this return not charged against book income this year (itemize): 5 Expenses recorded on books this year not deducted on this return (itemize): a Depreciation . . . . . . $ a Depreciation ..... $ b Charitable contribns $ b Charitable contributions $ c Travel & entertainment $ See st. 4 9 Add lines 7 and 8 6 Add lines 1 through 5 10 Income (page 1, line 28) - line 6 less line 9 Schedule M-2 Analysis of Unappropriated Retained Earnings per Books (Schedule L, Line 25) 1 Balance at beginning of year . 5 Distributions: a Cash 2 Net income (loss) per books . b Stock . c Property 3 Other increases (itemize): 6 Other decreases (itemize): _ 7 Add lines 5 and 6 4 Add lines 1, 2, and 3...... 8 Balance at end of year (line 4 less line 7) Form 1120 (2020) 6 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. 7 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 8 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 year 10 Enter the number of shareholders at the end of the tax year (if 100 or fewer) 11 If the corporation has an NOL for the tax year and is electing to forego the carryback period, check here (see instructions) D 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.) ... Form 1120 (2020) Pet Kingdom, Inc. 11-1111112 Page 6 ScheduleL Balance Sheets per Books Beginning of tax year End of tax year Assets (a) (b) (c) (d) 1 Cash 2a Trade notes and accounts receivable b Less allowance for bad debts 3 Inventories. 4 U.S. government obligations . 5 Tax-exempt securities (see instructions) 6 Other current assets (attach statement) See st. 1 7 Loans to shareholders .. 8 Mortgage and real estate loans 9 Other investments (attach statement) 10a Buildings and other depreciable assets b Less accumulated depreciation 11a Depletable assets .. b Less accumulated depletion 12 Land (net of any amortization) 13a Intangible assets (amortizable only) b Less accumulated amortization. 14 Other assets (attach statement) See st. 2 15 Total assets. Liabilities and Shareholders' Equity 16 Accounts payable .. 17 Mortgages, notes, bonds payable in less than 1 year 18 Other current liabilities (attach stmt) See st. 3 19 Loans from shareholders 20 Mortgages, notes, bonds payable in 1 year or more Other liabilities (attach statement) 21 22 Capital stock: a Preferred stock b Common stock 23 24 Additional paid-in capital .. Retained earnings - Appropriated (att stmt) Retained earnings Unappropriated 25 26 Adjmt to shareholders' equity (att stmt) 27 Less cost of treasury stock .. 28 Total liabilities and shareholders' equity Schedule M-1 Reconciliation of Income (Loss) per Books With Income per Return Note: The corporation may be required to file Schedule M-3. See instructions. 1 Net income (loss) per books 7 Income recorded on books this year not included on this return (itemize): 2 Federal income tax per books Tax-exempt interest 3 Excess of capital losses over capital gains 4 Income subject to tax not recorded on books this year (itemize): 8 Deductions on this return not charged against book income this year (itemize): 5 Expenses recorded on books this year not deducted on this return (itemize): a Depreciation . . . . . . $ a Depreciation ..... $ b Charitable contribns $ b Charitable contributions $ c Travel & entertainment $ See st. 4 9 Add lines 7 and 8 6 Add lines 1 through 5 10 Income (page 1, line 28) - line 6 less line 9 Schedule M-2 Analysis of Unappropriated Retained Earnings per Books (Schedule L, Line 25) 1 Balance at beginning of year . 5 Distributions: a Cash 2 Net income (loss) per books . b Stock . c Property 3 Other increases (itemize): 6 Other decreases (itemize): _ 7 Add lines 5 and 6 4 Add lines 1, 2, and 3...... 8 Balance at end of year (line 4 less line 7) Form 1120 (2020)