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 Kingdom’s business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211; and its e-mail address is [email protected]. 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. Janet’s Social Security number is 123-45-6789, and Kim’s 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 Kingdom’s 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 Salaries—officers Janet Morton $262,500 Kim Wong 262,500 $525,000 Salaries—clerical 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.