On November 1, 2006, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet

On November 1, 2006, 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 email address is p..m@pki.com.
*The employer identification number is 11-111111, 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 2012, the corporation distributed cash dividends of $300,000.
Pet Kingdom's financial statements for 2012 follow.

Income Statement

Income
Gross Sales $6,900,000
Sales returns and allowances (240,000)
Net Sales $6,660,000
Cost of Goods Sold (2,760,000)
Gross Profit $3,900,000
Dividends received from stock
investments in less-than-20%-
owned U.S. corporations $52,000
Interest Income:
State bonds $18,000
Cert. of Deposits 24,000 42,000
Total Income $3,994,500

Expenses:
Salaries - officers:
Janet Morton $315,000
Kim Wong 315,000 $630,000
Salaries - clerical and sales 870,000
Taxes (state,local, and payroll) 285,000
Repairs & maintenance 168,000
Interest Expense:
Loan to purch. state bonds $10500
Other business loans 261,000 $271,500
Advertising 69,000
Rental Expense 129,000
Depreciation* 120,000
Charitable Contributions 45,000
Employee benefit programs 72,000
Premiums on term life insurance
policies on lives of janet morton
and kim wong; pet kingdom is
the designated beneficiary 48,000
Total Expenses ($2,707,500)
Net income before taxes $1,287,000
Federal Income Tax (423,555)
Net Income per books $863,445

*depreciation for tax purposes is $165,000.

Balance sheet

Assets Jan. 1, 2012 Dec. 31, 2012
Cash $1,056,000 $ 784,000
Trade Notes & Acct. Rec. 1,815,000 2,012,000
Inventories 3,300,000 3,636,000
Stock Investment 990,000 990,000
State Bonds 330,000 330,000
Cert. of Deposits 385,000 385,000
Prepaid Federal Tax -0- 4,445
Buildings & other
deprec. assets 4,805,000 4,805,000
Accumulated Depreciation (727,000) (847,000)
Land 715,000 715,000
Other Assets 123,000 113,000
Total Assets $12,792,000 $12,900,445

Liabilities and Equity Jan. 1, 2012 Dec. 31, 2012
Accounts payable $2,035,000 $1,837,000
Other current liabilities 213,000 184,000
Mortgages 4,550,000 4,322,000
Capital Stock 3,000,000 3,000,000
Retained Earnings 2,994,000 3,557,445
Total Liabilities & equity $12,792,000 $12,900,445

During 2012, Pet Kingdom made estimated tax payments of $107,000 each quarter to the IRS. Prepare a Form 1120 for Pet Kingdom for tax year 2012.