Solution
Discussion Question 3-18 (LO. 4)
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Discussion Question 3-20 (LO. 5)Schedule M–1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: Net income per books + Additions – Subtractions = Taxable income.Classify each of the following items as an "Addition" or a "Subtraction" in the Schedule M–1 reconciliation.
a.
Life insurance proceeds received upon death of covered executive.
Subtraction
✔
b.
Tax depreciation in excess of book depreciation.
Subtraction
✔
c.
Federal income tax per books.
Addition
✔
d.
Capital loss in excess of capital gain.
Addition
✔
e.
Charitable contributions in excess of taxable income limitation.
Addition
✔
f.
Premiums paid on life insurance policies covering executives (corporation is
beneficiary).
Addition
✔
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Schedule M–1 of Form 1120 is used to reconcile net income as computed for financial accounting pu
the corporation's income tax return (commonly referred to as book-tax differences). Schedule M–1
than $10 million of total assets.
Post-Submission
Answers: Subtraction; Subtraction; Addition; Addition; Addition; Addition.
Schedule M-1 of Form 1120 is used to
reconcile
net income as computed for financial accounting pu
the corporation's income tax return (commonly referred to as book-tax differences). Schedule M-1
$10 million of total assets.
The starting point on Schedule M–1 is net income per books. Additions and subtractions are entered
books and taxable income differently. An example of an addition is Federal income tax expense, wh
per books but is disallowed in computing taxable income. An example of a subtraction is a charitabl
deducted for book purposes in a prior year but deducted in the current year for tax purposes.
