Question

Paul Inc, a calendar year C-Corp and accrual method taxpayer, provides the following information and wants a Schedule M-1 prepared (state which line each amount should be on on Schedule M-1). Journal entries should also be prepared.

Net Income per Book	535,000
Tax Exempt Interest Income	300
Federal Income Tax Paid	12,000
Life Insurance Proceeds	80,000-received upon death of key employee-the President
Capital Loss	8,000
MACRS Tax Depreciation	200,000 - depreciation taken on the tax return
Book Depreciation	20,000 - depreciation taken for book (financial statement)
Meals and Entertainment	6,000 - reported on financial statement

Journal Entries:

	M-1 JournalEntries
	Finanial Stmt	Debit	Credit	Tax Return
Expense
Fed Tax Expense
Depreciation Expense
Excess Captial Loss
Meals and Entert. Expense
Tax Exempt Int. Expense
Life Insurance Premiums(key employee
Income:
Tax Exempt Income
Life Insurance Proceeds (key employee)

Answer 1

		Financial Statement	Debit	Credit	Tax Return
	Expense
	Fed Tax Expense		12000
	Depreciation Expense		0	180000
	Excess Capital Loss		8000
	Meals and Entertainment Expense		6000
	Tax Exempt Int Expense		0
	Life Insurance premiums(Key employee)		0
	Income
	Tax Exempt Income			300
	Life Insurance proceeds (key employee)			80000
	Schedule M1
	Net Income/Loss as per books			$535,000	Line 1
	Federal Income tax as per books			12000	Line 2
	Excess of capital losses over capital gains			8000	Line 3
	Income subject to tax not recorded on books this year			0	Line 4
	Expenses recorded on books this year not deducted on this return				Line 5
	Depreciation			0	Line 5a
	Charitable contributions			0	Line 5b
	Travel and entertainment			$6,000	Line 5c
	Subtotal (Line 1 through Line 5)			$561,000	Line 6
	Income Recorded on books this year not included on this return				Line 7
	Tax Exempt interest			$300	Line 7a
	Life insurance proceeds received as a result of the death of the corporate president			$80,000	Line 7b
	Deductions on this return not charged against book income this year				Line 8
	Depreciation			$180,000
	Charitable contributions			0
	Subtotal (Line 7 throught line 8)			$260,300	Line 9
	Income (Line 6 less line 9)			$300,700	Line 10
	Depreciation as per books			20000
	Depreciation as per tax returns			200000
				-180000