Question

The following adjusted revenue and expense accounts appeared in the accounting records of Pashi, Inc., an accrual basis taxpayer, for the year ended December 31, Year 2.

Revenues
Net sales	$3,000,000
Interest	18,000
Gains on sales of stock	5,000
Key-man life insurance proceeds	100,000
Subtotal	$3,123,000
Costs and Expenses
Cost of goods sold	$2,000,000
Salaries and wages	500,000
Bad debt expense	13,000
Taxes, other than federal income	62,000
Interest	12,000
Contributions	5,000
Depreciation	60,000
Other	40,000
Federal income taxes	120,000
Subtotal	$2,812,000
Net Income	$311,000

The following additional information is provided:

1. Interest revenue consists of:

Corporate bonds	$15,000
Municipal bonds	3,000

2. Gains on sales of stock consist of the following unrelated corporations:

Ral Corp. (bought in May Year 1, sold in June Year 2)	$1,000
Blu, Inc. (bought in November Year 1, sold in September Year 2)	4,000

3. Pashi, Inc. owned the key-man life insurance policy, paid the premiums, and was the direct beneficiary. The proceeds were collected on the death of the corporation's treasurer.

4. Bad debt expense represents a reasonable addition to Pashi, Inc.'s allowance for uncollectible accounts, under the method consistently used. Actual accounts written off in Year 2 amounted to $4,000.

5. Taxes, other than federal income, consist of:

Payroll taxes	$40,000
Property taxes	20,000
Penalty for late payment of taxes	2,000

6. Interest expense consists of $11,000 interest on funds borrowed for working capital and $1,000 interest on funds borrowed to buy the municipal bonds.

7. Contributions were all paid in Year 2 to State University, specifically designated for the purchase of laboratory equipment.

8. Depreciation per books is straight-line. For tax purposes, depreciation amounted to $85,000.

9. Other expenses include premiums of $5,000 on the key-man life insurance policy covering the treasurer, who died in December Year 2.

10. Federal income tax paid in Year 2 amounted to $105,000. The difference between the income tax provision and income tax paid is the result of temporary differences.

In the associated cells in column C, enter the appropriate amount for the item you selected in column B. Note that not all areas of the M-1 form are presented here.