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For 2016, Permtemp reported the following book income statement and balance sheet, excluding the federal income tax expense, deferred tax assets, and deferred tax liabilities: Sales $33,000,000 Cost of goods sold (22,000,000) Gross profit $11,000,000 Dividend income 55,000 Tax-exempt interest income 15,000 Total income $11,070,000 Expenses: Depreciation $ 800,000 Bad debts 625,000 Charitable contributions 40,000 Interest 455,000 Meals and entertainment 60,000 Other 4,675,000 Total expenses (6,655,000) Net income before federal income taxes $ 4,415,000 Cash $ 2,125,000 Accounts receivable $ 3,300,000 Allowance for doubtful accounts (450,000) 2,850,000 Inventory 6,000,000 Fixed assets $10,000,000 Accumulated depreciation (1,600,000) 8,400,000 Investment in corporate stock 1,000,000 Investment in tax-exempt bonds 50,000 Total assets $20,425,000 Accounts payable $ 2,120,000 Long-term debt 8,500,000 Common stock 6,000,000 Retained earnings 3,805,000 $20,425,000

Additional information for 2016: Depreciation for tax purposes is $2.45 million under MACRS. Bad debt expense for tax purposes is $425,000 under the direct writeoff method. Qualified production activities income is $3 million.

Required for 2016: a. Prepare page 1 of the 2016 Form 1120, computing the corporations taxable income and tax liability.

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