1. John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners, respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303. Premium’s S election was made on January 15, 2012, its date of incorporation. The following information was taken from the company’s 2020 income statement. Premium’s book income for the year was $704,574.

Interest income $ 100,000 Gross sales receipts 2,410,000 Beginning inventory 9,607 Direct labor (203,102)

Direct materials purchased (278,143)

Direct other costs (249,356)

Ending inventory 3,467 Salaries and wages (442,103)

Officers’ salaries ($75,000 each to Parsons and Smith) (150,000)

Repairs (206,106)

Depreciation expense, tax and book (15,254)

Interest expense (35,222)

Rent expense (operating) (40,000)

Taxes (65,101)

Charitable contributions (cash) ($20,000)

Advertising expenses (20,000)

Payroll penalties (15,000)

Other deductions (59,899)

A 2020 comparative balance sheet appears below.
January 1 December 31 Cash $ 47,840 $ ?
Accounts receivable 93,100 123,104 Inventories 9,607 3,467 Prepaid expenses 8,333 17,582 Building and equipment 138,203 185,348 Accumulated depreciation (84,235) (?)
Land 2,000 2,000 Total assets $214,848 $844,422 Accounts payable $ 42,500 $ 72,300 Notes payable (less than 1 year) 4,500 2,100 Notes payable (more than 1 year) 26,700 24,300 Capital stock 30,000 30,000 Retained earnings 111,148 ?
Total liabilities and capital $214,848 $844,422 Premium’s accounting firm provides the following additional information.
Cash distributions to shareholders $100,000 Beginning balance, accumulated adjustments account 111,148 Using the preceding information, prepare a Form 1120S and Schedule K–1s for John Parsons and George Smith, both of whom live at 5607 20th Street, Cut and Shoot, TX 77303. If any information is missing, make realistic assumptions. Suggested software: ProConnect Tax.