Question On November1 ,2007, Janet Morton and Kim Wong formed Pet Kingdom,Inc.,to sell pets and pet supplies. Pertinent information regarding PetKingdom is summarized as follows: Pet Kingdoms 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 11-1111111, and the principal businessactivity 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. Janets Social Security number is 123-45-6789, and Kims Social Security number is 987-65-4321. 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 thestraight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes. During 2016, the corporation distributed cash dividends of $250,000. Pet Kingdoms financial statements for 2016 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 38,000 Employee benefit programs 60,000 Premiums on term life insurance policies on lives of Janet Morton and Kim Wong; Pet Kingdom is thedesignated beneficiary 40,000 Total expenses (2,255,000) Net income before taxes $ 1,073,750 Federal income tax (356,023) Net income per books $ 717,727 Balance Sheet Assets January 1, 2016 December 31, 2016 Cash $ 1,200,000 $ 1,037,750 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 3,977 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, 2016 December 31, 2016 Accounts payable $ 2,284,000 $ 1,975,000 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 4,597,727 Total liabilities and equity $13,714,000 $13,802,727 During 2016, Pet Kingdom made estimated tax payments of $90,000 each quarter tothe IRS. Prepare a Form 1120 for Pet Kingdom for tax year 2016.