Thompson Corporation is a calendar-year, accrual-basis taxpayer.
It provides the following information for this year and asks you to
prepare Schedule M-1.
?
Net income per books (after-tax) |
$239,700 |
Taxable income |
195,000 |
Federal income tax liability |
59,300 |
Interest income from tax-exempt bonds |
5,000 |
Interest paid on loan incurred to purchase tax-exempt bonds |
2,000 |
Life insurance proceeds received as a result of death of Heron’s president |
100,000 |
Premiums paid on policy on life of Heron’s president |
4,500 |
Excess of capital losses over capital gains |
2,000 |
Retained earnings at beginning of year |
375,000 |
Cash dividends paid |
90,000 |
Tax depreciation in excess of book depreciation |
7,500 |
In your analysis, include the following:
An introduction
Schedule M-1 (don’t forget to show your work)
Conclusion
Net income as per books will be reconcilled to taxable income as follow and to prepare schedule M1;
Net income per books (after tax) |
$239700 |
Plus: Items that decreased net income per books but do not change taxable income |
|
+ Federal income tax liability |
$59300 |
+ Excess of capital losses over capital gains |
$2000 |
+ Interest paid on loan incurred to purchase tax-exempt bonds |
$2000 |
+ Premiums paid on policy on life of president of the corporation |
$4500 |
Sub total |
$307500 |
Minus: Items that increase net income per books but do not change taxable income |
|
- Interest income from tax-exempt bonds |
($5000) |
- Life insurance proceeds received as a result of the death of the corporate president |
($100000) |
- Tax depreciation in excess of book depreciation |
($7500) |
Taxable income |
$195000 |
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