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 Gross sales Sales returns and allowances Net sales 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 Salaries-officers: Janet Morton Expenses Kim Wong Salaries-clerical and sales Taxes (state, local, and payroll) Income Statement $5,750,000 (200,000) $5,550,000 (2,300,000) $3,250,000 43,750 $15,000 20,000 35,000 $3,328,750 $262,500 262,500 $525,000 725,000 238,000 Depreciation* Charitable contributions (cash) Employee benefit programs 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 109,000 106,000 38,000 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 Net income before taxes (2,255,000) $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. Assets Cash Trade notes and accounts receivable Inventories Stock investment State bonds Balance Sheet January 1, 2020 December 31, 2020 $1,200,000 $1,039,461 2,062,500 2,147,000 2,750,000 3,030,000 1,125,000 375,000 400,000 1,125,000 375,000 400,000 Certificates of deposit 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 Accounts payable Other current liabilities Mortgages Capital stock Retained earnings Total liabilities and equity Required: January 1, 2020 $2,284,000 175,000 December 31, 2020 $1,840,711 155,000 4,625,000 4,575,000 2,500,000 2,500,000 4,130,000 4,732,016 $13,714,000 $13,802,727 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. Form 1120 Department of the Treasury Internal Revenue Service A Check if: 1a Consolidated return U.S. Corporation Income Tax Return For calendar year 2020 or tax year beginning ____, 2020, ending Go to www.irs.gov/Form1120 for instructions and the latest information. OMB No. 1545-0123 2020 B Employer identification number 11-1111112 (attach Form 851).. . b Life/nonlife consolidated return. . . 2 Personal holding co. (attach Sch. PH) .... . 3 Personal service corp. (see instrs).... . TYPE Pet Kingdom, Inc. OR 1010 Northwest Parkway PRINT Dallas, TX 75225 4 Schedule M-3 attached E Check if: (1) Initial return 1a Gross receipts or sales. b Returns and allowances.. c Balance. Subtract line 1b from line 1a. C Date incorporated 11/01/2009 D Total assets (see instructions) (2) Final return (3) Name change (4) Address change 1a 5,750,000 1b 200,000 1c 5,550,000 2 Cost of goods sold (attach Form 1125-A). 3 Gross profit. Subtract line 2 from line 1c. 2 2,300,000 3 3,250,000 INCOME 4 Dividends and inclusions (Schedule C, line 23). 4 43,750 5 Interest... 6 Gross rents. 7 Gross royalties... 5 35,000 X 6 7 8 Capital gain net income (attach Schedule D (Form 1120)). 8 9 Net gain or (loss) from Form 4797, Part II, line 17 (attach Form 4797). 9 27 Total deductions. Add lines 12 through 26... 27 2,236,000 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11 28 1,077,750 29a Net operating loss deduction (see instructions). . 29a 29b 0X b Special deductions (Schedule C, line 24). c Add lines 29a and 29b . . . 30 Taxable income. Subtract line 29c from line 28. See instructions 31 Total tax (Schedule J, Part I, line 11) . . . 32 2020 net 965 tax liability paid (Schedule J, Part II, line 12) ... 33 Total payments, credits, and section 965 net tax liability (Schedule J, Part III, line 23). 34 Estimated tax penalty. See instructions. Check if Form 2220 is attached. . 35 Amount owed. If line 33 is smaller than the total of lines 31, 32, and 34, enter amount owed. 36 Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid..... 37 Enter amount from line 36 you want: Credited to 2021 estimated tax 29c 0x 30 1,043,750 X 31 346,075 X 32 33 360,000 X 34 35 36 3,977 X Refunded 37 3,977 X Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to CREDITS AND TAX REFUNDABLE PATS ONS SN Reserved for future use 26 Other deductions (attach statement). 26 27 Total deductions. Add lines 12 through 26. 27 2,236,000 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11 28 1,077,750 29a Net operating loss deduction (see instructions)... b Special deductions (Schedule C, line 24) . . . . 29a 29b 0X CREDITS TAX REFUNDABLE PATS AND c Add lines 29a and 29b . . . . 30 Taxable income. Subtract line 29c from line 28. See instructions... 31 Total tax (Schedule J, Part I, line 11) . . . . . 32 2020 net 965 tax liability paid (Schedule J, Part II, line 12) . . . . . 33 Total payments, credits, and section 965 net tax liability (Schedule J, Part III, line 23). 34 Estimated tax penalty. See instructions. Check if Form 2220 is attached. . . . . 35 Amount owed. If line 33 is smaller than the total of lines 31, 32, and 34, enter amount owed...... 36 Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid ..... 37 Enter amount from line 36 you want: Credited to 2021 estimated tax 29c 0X 30 1,043,750 X 31 346,075 X 32 33 360,000 X 34 35 3,977 X 36 Refunded 37 3,977 X Sign Here Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. May the IRS discuss this return with the preparer shown below? See instructions. Yes No Signature of officer Date Title Print/Type preparer's name Paid Preparer's signature Self-Prepared Date Check if self- employed PTIN Preparer Firm's name Firm's EIN Use Only Firm's address Phone no. BAA For Paperwork Reduction Act Notice, see separate instructions. Form 1120 (2020) 1958... 11 Dividends from affiliated group members.. 12 Dividends from certain FSCs . . . 13 Foreign-source portion of dividends received from a specified 10%-owned foreign corporation (excluding hybrid dividends) (see instructions) . . . . . 14 Dividends from foreign corporations not included on line 3, 6, 7, 8, 11, 12, or 13 (including any hybrid dividends) ...... 100 100 100 100 Section 965(a) inclusion . . . 15 16a Subpart F inclusions derived from the sale by a controlled foreign corporation (CFC) of the stock of a lower-tier foreign corporation treated as a dividend (attach Form(s) 5471) (see instructions) . . . . b Subpart F inclusions derived from hybrid dividends of tiered corporations (attach Form(s) 5471) (see instructions) . . . . . c Other inclusions from CFCs under subpart F not included on line 15, 16a, 16b, or 17 (attach Form(s) 5471) (see instructions)... 17 Global Intangible Low-Taxed Income (GILTI) (attach Form(s) 5471 and Form 8992).... Gross-up for foreign taxes deemed paid.. 18 19 IC-DISC and former DISC dividends not included on line 1, 2, or 3. 20 Other dividends . . . . 21 Deduction for dividends paid on certain preferred stock of public utilities . . . 22 Section 250 deduction (attach Form 8993) . . . . . See instructions 100 23 Total dividends and inclusions. Add column (a), lines 9 through 20. Enter here and on page 1, line 4. . . . 21,875 X 24 Total special deductions. Add column (c) lines 9 through 22. Enter here and on page 1, line 29b 30,625 X Form 1120 (2020) Schedule J Tax Computation and Payment (see instructions) Part I - Tax Computation 1 Check if the corporation is a member of a controlled group (attach Schedule O (Form 1120)). See instructions ... 2 Income tax. See instructions . . . 3 Base erosion minimum tax amount (attach Form 8991).. 4 Add lines 2 and 3.. 5a Foreign tax credit (attach Form 1118) .. b Credit from Form 8834 (see instructions). c General business credit (attach Form 3800). d Credit for prior year minimum tax (attach Form 8827) e Bond credits from Form 8912 .. 6 Total credits. Add lines 5a through 5e.. 2 336,023 X 3 4 336,023 X 5a 5b 5c 5d 5e 6 7 Subtract line 6 from line 4. . . . 8 Personal holding company tax (attach Schedule PH (Form 1120)). 7 336,023 X 8 9a Recapture of investment credit (attach Form 4255) ... 9a b Recapture of low-income housing credit (attach Form 8611).. 9b c Interest due under the look-back method - completed long-term contracts (attach Form 8697) ...... 9c d Interest due under the look-back method - income forecast method (attach Form 8866)..... 9d e Alternative tax on qualifying shipping activities (attach Form 8902). . f Interest/tax due under Section 453A(c) and/or Section 453(1). g Other (see instructions - attach statement). 10 Total. Add lines 9a through 9g. 9e 9f 9g 10 f Interest/tax due under Section 453A(c) and/or Section 453(1). 9f g Other (see instructions - attach statement).. 10 Total. Add lines 9a through 9g ... 9g 10 11 336,023 X 11 Total tax. Add lines 7, 8, and 10. Enter here and on page 1, line 31 Part II - Section 965 Payments (see instructions) 12 2020 net 965 tax liability paid from Form 965-B, Part II, column (k), line 3. Enter here and on page 1, line 32. Part III - Payments and Refundable Credits, and Section 965 Net Tax Liability 12 13 2019 overpayment credited to 2020.. 13 14 2020 estimated tax payments.. 15 2020 refund applied for on Form 4466 16 Combine lines 13, 14, and 15. 17 Tax deposited with Form 7004 18 Withholding (see instructions).. 19 Total payments. Add lines 16, 17, and 18. 20 Refundable credits from: a Form 2439. b Form 4136.. c Reserved for future use d Other (attach statement - see instructions). 20a 20b 20c 20d 14 15 16 17 18 19 21 Total credits. Add lines 20a through 20d.. 21 22 2020 net 965 tax liability from Form 965-B, Part I, column (d), line 4. See instructions... 22 23 Total payments, credits, and section 965 net tax liability. Add lines 19, 21, and 22. Enter here and on page 1, line 33... 23 Form 1120 (2020) Feedback 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) 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.). X Form 1120 (2020) Form 1120 (2020) Schedule L 1 Cash. Pet Kingdom, Inc. Balance Sheets per Books Assets 2a Trade notes and accounts receivable. b Less allowance for bad debts. 3 Inventories .. 4 U.S. government obligations . . . Beginning of tax year (a) (b) 1,200,000 2,062,500 11-1111112 () End of tax year (d) Page 6 1,039,461 2,147,000 0x 2,750,000 0X 3,030,000 5 Tax-exempt securities (see instructions) . . . . . . . 0X 0 6 Other current assets (attach statement) See st. 1 1,525,000 X 1,527,266 X 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 .. 375,000 X 375,000 X 5,455,000 5,455,000 606,000 4,894,000 X 712,000 4,743,000 812,500 812,500 14 Other assets (attach statement) See st. 2 140,000 128,500 15 Total assets 13,714,000 13,802,727 Liabilities and Shareholders' Equity 16 Accounts payable. 2,284,000 1,840,711 16 Accounts payable... 2,284,000 17 Mortgages, notes, bonds payable in less than 1 year 4,625,000 18 Other current liabilities (attach stmt) See st. 3 175,000 19 Loans from shareholders. ... 20 Mortgages, notes, bonds payable in 1 year or more 21 Other liabilities (attach statement).. 22 Capital stock: a Preferred stock.. b Common stock 23 Additional paid-in capital . . . . 24 Retained earnings - Appropriated (att stmt) . . . . . 25 Retained earnings - Unappropriated.. 26 Adjmt to shareholders' equity (att stmt). 27 Less cost of treasury stock . . . 28 Total liabilities and shareholders' equity. 1,840,711 4,575,000 155,000 2,500,000 2,500,000 2,500,000 2,500,000 4,130,000 4,151,447.0 X 13,714,000 13,824,174. X Schedule M-1 1 Reconciliation of Income (Loss) per Books With Income per Return Note: The corporation may be required to file Schedule M-3. See instructions. 717,727 X7 Income recorded on books this year not included on this return (itemize): Net income (loss) per books.. 2 Federal income tax per books . . . . 356,023 X 3 Excess of capital losses over capital gains 4 Income subject to tax not recorded on books this year (itemize): Tax-exempt interest 5 Expenses recorded on books this year not deducted on this return (itemize): a Depreciation .... b Charitable contributions $ c Travel & entertainment $ See st. 4 8 Deductions on this return not charged against book income this year (itemize): a Depreciation.. $ b Charitable contribns $ 6 Add lines 1 through 5. 9 Add lines 7 and 8 .... 1,073,750 X 10 Income (page 1, line 28)-line 6 less line 9 1,043,750 X Schedule M-2 Analysis of Unappropriated Retained Earnings per Books (Schedule L, Line 25) 1 Balance at beginning of year. 2 Net income (loss) per books... 3 Other increases (itemize): 4 Add lines 1, 2, and 3.. . 5 Distributions: a Cash b Stock ...... c Property. 6 Other decreases (itemize): 7 Add lines 5 and 6.... 8 Balance at end of year (line 4 less line 7) Form 1125-A (Rev. November 2018) Department of the Treasury Internal Revenue Service Name Pet Kingdom, Inc. 1 Inventory at beginning of year 2 Purchases. Cost of Goods Sold Attach to Form 1120, 1120-C, 1120-F, 1120S, or 1065. Go to www.irs.gov/Form1125A for the latest information. 1 OMB No. 1545-0123 Employer identification number 11-1111112 3 Cost of labor... 4 Additional section 263A costs (attach schedule) 5 Other costs (attach schedule). 6 Total. add lines 1 through 5. 2 3 4 5 6 7 Inventory at end of year.. 8 Cost of goods sold. Subtract line 7 from line 6. Enter here and on Form 1120, page 1, line 2 or the appropriate line of your tax return. See instructions . . . 9 a Check all methods used for valuing closing inventory: (i) x Cost (ii) Lower of cost or market (iii) Other (Specify method used and attach explanation.) b Check if there was a writedown of subnormal goods..... 7 8 C Check if the LIFO inventory method was adopted this tax year for any goods (if checked, attach Form 970) d If the LIFO inventory method was used for this tax year, enter amount of closing inventory computed under LIFO . . . . 9d e If property is produced or acquired for resale, do the rules of section 263A apply to the entity? See instructions ... Yes > No f Was there any change in determining quantities, cost, or valuations between opening and closing inventory? If "Yes," attach explanation. . . . . ..... Yes No BAA For Paperwork Reduction Act Notice, see instructions. Form 1125-A (Rev. 11-2018) Part II Janet Morton Kim Wong 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 (iv) Percentage Owned in Voting Stock instructions) 123-45-6788 United States 123-45-6787 United States % % BAA For Paperwork Reduction Act Notice, see the instructions for Form 1120. Schedule G (Form 1120) (Rev 12-2011) 4a Worldwide consolidated net income (loss) from income statement source identified in Part I, line 1 b 4a Indicate accounting standard used for line 4a (see instructions): (1) GAAP (2) IFRS (3) Statutory (4) Tax-Basis (5) Other (specify) 5a Net income from nonincludible foreign entities (attach statement) . . . 5a b Net loss from nonincludible foreign entities (attach statement and enter as a positive amount). 5b Net income from nonincludible U.S. entities (attach statement) . . . b Net loss from nonincludible U.S. entities (attach statement and enter as a positive amount). 6b 7a Net income (loss) of other includible foreign disregarded entities (attach statement). 7a b Net income (loss) of other includible U.S. disregarded entities (attach statement). 7b Net income (loss) of other includible entities (attach statement).. 7c 8 Adjustment to eliminations of transactions between includible entities and nonincludible entities (attach statement) .... 8 9 Adjustment to reconcile income statement period to tax year (attach statement). 10 a Intercompany dividend adjustments to reconcile to line 11 (attach statement). 11 b Other statutory accounting adjustments to reconcile to line 11 (attach statement). c Other adjustments to reconcile to amount on line 11 (attach statement). 9 10a 10b 10c Net income (loss) per income statement of includible corporations. Combine lines 4 through 10... 11 Note: Part I, line 11, must equal Part II, line 30, column (a), or Schedule M-1, line 1 (see instructions). 12 Enter the total amount (not just the corporation's share) of the assets and liabilities of all entities included or removed on the following lines. a Included on Part I, line 4 b Removed on Part I, line 5. c Removed on Part I, line 6.. d Included on Part I, line 7..... Total Assets Total Liabilities BAA For Paperwork Reduction Act Notice, see the Instructions for Form Schedule M-3 (Form 1120) 2020 (Rev. 12- 2020 Statement 1 Form 1120, Schedule L, Line 6 Other Current Assets Certificate of Deposit.. Prepaid Federal Tax. Statement 2 Form 1120, Schedule L, Line 9 Other Other Investments Stock Investments Federal Statements Pet Kingdom, Inc. Page 1 11-1111112 Total Total Beginning Ending Beginning Ending Statement 3 Form 1120, Schedule L, Line 14 Other Assets Other Assets Statement 4 Form 1120, Schedule L, Line 18 Other Current Liabilities Other Current Liabilities. Statement 5 Form 1120, Schedule M-1, Line 5 Book Expenses Not Deducted Total Total Beginning Ending Beginning Ending Total 100