Question

Cramer Corporation, a calendar year, accrual basis corporation, reported $1 million of net income after tax on its 2019 financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the following information:

• Cramer's federal income tax expense per books was $200,000.
• Cramer's book income included $10,000 of dividends received from a domestic corporation in which Cramer owns a 25 percent stock interest, and $4,000 of dividends from a domestic corporation in which Cramer owns a 5 percent stock interest.
• Cramer recognized $10,000 of capital losses this year and no capital gains.
• Cramer recorded $8,000 of book expense for meals and $10,000 of book expense for entertainment costs.
• Cramer's depreciation expense for book purposes totaled $400,000. MACRS depreciation was $475,000.
  

1. Compute Cramer's federal taxable income and regular tax liability.
2. Prepare a Schedule M-1, page 6, Form 1120, reconciling Cramer’s book and taxable income.
3. Required B

4. Prepare a Schedule M-1, page 6, Form 1120, reconciling Cramer’s book and taxable income. (Any Expenses (Line 5) and Deductions (Line 8) that are not included under Depreciation, Charitable Contributions, and Travel and Entertainment should be combined in the corresponding line item “Other”. Enter all amounts as positive. Enter your answers in whole dollars not in millions.)

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   Schedule M-1 Reconciliation of Income (Loss) per Books With Income per Return Note: The corporation may be required to file Schedule M-3. See instructions 1 Net income (loss) per books 1,000,000 7 Income recorded on books this year not included on 2 Federal income tax per books 200,000 this return (itemize): 3 Excess of capital losses over captial gains 10,000 Tax-exempt interest: 4 Income subject to tax not recorded on books this year (itemize) 0 0 5 Expenses recorded on books this year not deducted on 8 Deductions on this return not charged against book this return (itemize): income this year (itemize): a Depreciation a Depreciation b Charitable contributions b Charitable contributions c Travel and entertainment c Other (include all items) 0 d Other (include all items) 0 9 Add lines 7 and 8 0 6 Add lines 1 through 5 1,210,000 10 Income (page 1, line 28) - line 6 less line 9 1,210,000

Answer 1

	Cramer Corporation		Amount ($)
	Net Income after Tax		10,00,000
	Add:
	Federal Income Tax		2,00,000
	Less
	Deduction on Dividend Income		10,800
	80% on dividend from Domestic Corporation , in which corporation has 20% or more ownership
	70% on dividend from Domestic Corporation , in which corporation has less than 20% ownership
	80% *$10000+70%*$4000
	Add
	Capital Loss disallowed		10,000
	Book Expenses for meal 7 Entertainment cost ( 50* $8000)		4,000
	Less
	Excess depreciation on Tax return		75,000
	($475000-$400000)
	Federal Income Tax		11,28,200
	Federal Tax computation		Amount ($)
a	Taxable Income ( form 1120)		11,28,200
b	Share of $50000 tax bracket		50,000
c	Balance ( a-b)		10,78,200
d	Less $ 25000 Tax bracket		25,000
e	Balance ( c-d)		10,53,200
f	Tax 15% on b		7,500
g	Tax 25% on d		6,250
h	Tax 34% on e		3,58,088
i	Addition 5% tax not to exceed $11750		11,750
	Total Tax liability(h+i)		3,69,838

Answer 2

$1,000,000	post tax income
$200,000	paid tax
$10,000	capital losses
$4,000	meals
$10,000	entertainment
-$75,000	dep
-$6,500	dividends
-$2,000	dividends
$1,140,500	federal taxable income