Tammy Adams and Fernando Hernandez each own 50% of Custom Designs, Inc. (CDI). On May 6, 2003, they formed CDI to provide architectural services. CDI’s information is summarized as follows:

CDI’ s business address is 2120 Adobe Drive, Las Cruces, NM 88011; its employer identification number is 11-1111111, and the principal business activity code is 541310.

CDI is a cash method, calendar year taxpayer.

CDI’s financial statement for 2016 is show below:

Income Statement

Income

Professional fees

739,000

Long-term capital gain

5,000

Short-term capital gain

8,000

Long-term capital loss

6,000

Dividends distributed from Gary Inc. (CDI ownership in Gary is 17%)

20,000

Interest income

State bonds $18,000

Corporate bonds 24,000

42,000

Life insurance proceeds on the death of a key employee

500,000

Total income

1,308,000

Expenses

Salaries-officers

Tammy Adams: 190,000

Fernando Hernandez: 190,000

380,000

Salaries -clerical

61,000

Taxes (state, local , and payroll)

55,620

Advertising

17,650

Rental expenses

9,270

Repairs and maintenance

16,340

Interest expenses:

On loan to purchase state bonds

10,500

Depreciation* (depreciation for tax purpose is $42,000)

35,000

Premiums on life insurance for key employees

25,000

Meals and entertainment

9,800

Total expenses

620,180

Net income before taxes

687,820

Tax

233,858

Income after tax

453,962

During 2016, CDI made estimated tax payment of $60,000 each quarter to the IRS. Prepare a Form 1120 page 1 and schedule M-1 on page 5 for CDI for tax year 2016