Question

Problem 17-47 (LO. 5)

The following information for 2019 relates to Sparrow Corporation, a calendar year, accrual method taxpayer:

Net income per books (after-tax) $205,050 Federal income tax expense per books 55,650 Tax-exempt interest income 4,500 MACRS depreciation in excess of straight-line depreciation used for financial statement purposes 7,200 Excess of capital losses over capital gains 9,400 Nondeductible meals and entertainment 5,500 Interest on loan to purchase tax-exempt bonds 1,100

a. Regarding items that would be added back on the M–1 schedule, label either "Yes" (it would be added back to net income per books) or "No" (it would not be).

• Federal income tax expense per books • Excess of capital loss over capital gains • Tax-exempt interest income • Excess of MACRS over book depreciation • Interest on loan to purchase tax-exempt bonds • Nondeductible meals and entertainment

b. Sparrow's taxable income for 2019 is $.

c. Prepare Schedule M–1 for 2019.

Enter all amounts as positive numbers. If an amount is zero, enter "0".

Schedule M-1 Reconciliation of Income (Loss) per Books With Income per Return 1 Net income (loss) per books . . . . . . . . . . . . . 2 Federal income tax per books . . . . . . . . . . . . 3 Excess of capital losses over capital gains . . . 4 Income subject to tax not recorded on books this year (itemize):_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 5 Expenses recorded on books this year not deducted on this return (itemize): a Depreciation . . . . . . . . . . . $ b Charitable contributions . . . $ _ _ _ _ _ _ _ c Travel and entertainment . . $ 6 Add lines 1 through 5 . . . . . . . . . . . . . . . . . . 7 Income recorded on books this year not included on this return (itemize): Tax-exempt interest $ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 8 Deductions on this return not charged against book income this year (itemize): a Depreciation . . . . . . . . . . . $ b Charitable contributions . . . . $ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 9 Add lines 7 and 8 . . . . . . . . . . . . . . . . . . . . . 10 Income (page 1, line 28)—line 6 less line 9 . .

Answer 1

•	Federal income tax expense per books	Yes
•	Excess of capital loss over capital gains	Yes
•	Tax-exempt interest income	No
•	Excess of MACRS over book depreciation	No
•	Interest on loan to purchase tax-exempt bonds	Yes
•	Nondeductible meals and entertainment	Yes

Schedule M-1	Reconciliation of Income (Loss) per Books With Income per Return
1	Net income (loss) per books . . . . . . . . . . . . .	205050	7	Income recorded on books this year not included on this return (itemize):
2	Federal income tax per books . . . . . . . . . . . .	55650		Tax-exempt interest $	4500
3	Excess of capital losses over capital gains . . .	9400
4	Income subject to tax not recorded on books this year (itemize):
	Nondeductible meals and entertainment	5500
	Interest on loan to purchase tax-exempt bonds	1100	8	Deductions on this return not charged against book income this year (itemize):
5	Expenses recorded on books this year not deducted on this return (itemize):		a	Depreciation . . . . . . . . . . . $	7200
a	Depreciation . . . . . . . . . . . $		b	Charitable contributions . . . . $ _ _ _ _ _ _ _ _
b	Charitable contributions . . . $ _ _ _ _ _ _ _			_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
c	Travel and entertainment . . $			_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
			9	Add lines 7 and 8 . . . . . . . . . . . . . . . . . . . . .	11700
6	Add lines 1 through 5 . . . . . . . . . . . . . . . . . .	276700	10	Income (page 1, line 28)—line 6 less line 9 . .	265000