Question

Emerald Corporation, a calendar year and accrual method taxpayer, provides the following information and asks you to prepare Schedule M–1 for 2020:

Answer 1

Answer:

Emerald’s net income per books is reconciled to taxable income as follows:

Net income per books (after tax) $268,200

Plus:

Items that decreased net income per books

but did not affect taxable income:

+ Federal income tax per books 31,500

+ Excess of capital losses over capital gains 6,000

+ Interest on loan to purchase tax-exempt bonds 1,500

+ Premiums paid on life insurance policy on life of Albatross’s president 7,800

Subtotal $315,000

Minus:

Items that increased net income per books but did not affect taxable income:

– Tax-exempt interest income (15,000)

– Life insurance proceeds received as a result of the death of the corporate president (150,000)

Taxable income $150,000

Emerald Corporation’s completed Schedule M–1 (Form 1120) follows:

..

165,000 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 . 268,200 7 Income recorded on books this year 2 Federal income tax per books 31,500 not included on this return (itemize): 3 Excess of capital losses over capital gains 6,000 Tax-exempt interest $ 15,000 4 Income subject to tax not recorded on books Life insurance proceeds 150,000 this year (itemize): 8 Deductions on this return not charged 5 Expenses recorded on books this year not against book income this year (itemize): deducted on this return (itemize): a Depreciation $ Depreciation $ b Charitable contributions $ b Charitable contributions. $ Travel and entertainment. $ St bond int exp 1,500; Life insur prem 7,800 9,300 9 Add lines 7 and 8 6 Add lines 1 through 5. 315,000 10 Income (page 1, line 28) — line 6 less line 9 a с 165,000 150,000