Problem 3—C Corporation (FORM 1120)
On November 1, 2005, 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 firstname.lastname@example.org.
· The employer identification number is 11-1111111, 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 123-45-6789, 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 the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes.
· During 2018, the corporation distributed cash dividends of $306,495.
Pet Kingdom’s financial statements for 2019 are shown below.
Gross Sales $4,600,000
Sales returns and allowances (160,000)
Net Sales $4,440,000
Cost of goods sold (1,840,000)
Gross Profit $2,600,000
Dividends received from stock Investments
in less-than-20%-owned U.S. corporations 35,000
State bonds $12,000
Certificates of deposit 16,000 28,000
Total income $2,663,000
Janet Morton $210,000
Kim Wong 210,000 $420,000
Salaries-clerical and sales 580,000
Taxes (state, local, and payroll) 190,000
Repairs and maintenance 112,000
Loan to purchase state bonds $ 7,000
Other business loans 174,000 181,000