Tammy Adams and Fernando Hernandez each own 50% of Custom Designs, Inc. (CDI). On May 6, 2003, they formed CDI to provide architectural services. CDIs information is summarized as follows:

CDI s business address is 2120 Adobe Drive, Las Cruces, NM 88011; its employer identification number is 11-1111111, and the principal business activity code is 541310.

CDI is a cash method, calendar year taxpayer.

CDIs financial statement for 2016 is show below:

Income Statement

Income
Professional fees	739,000
Long-term capital gain	5,000
Short-term capital gain	8,000
Long-term capital loss	6,000
Dividends distributed from Gary Inc. (CDI ownership in Gary is 17%)	20,000
Interest income State bonds $18,000 Corporate bonds 24,000	42,000
Life insurance proceeds on the death of a key employee	500,000
Total income	1,308,000

Expenses
Salaries-officers Tammy Adams: 190,000 Fernando Hernandez: 190,000	380,000
Salaries -clerical	61,000
Taxes (state, local , and payroll)	55,620
Advertising	17,650
Rental expenses	9,270
Repairs and maintenance	16,340
Interest expenses: On loan to purchase state bonds	10,500
Depreciation* (depreciation for tax purpose is $42,000)	35,000
Premiums on life insurance for key employees	25,000
Meals and entertainment	9,800
Total expenses	620,180
Net income before taxes	687,820
Tax	233,858
Income after tax	453,962

During 2016, CDI made estimated tax payment of $60,000 each quarter to the IRS. Prepare a Form 1120 page 1 and schedule M-1 on page 5 for CDI for tax year 2016