1. Identify the correct answer about the purposes of Schedules M-1 and M-3.

2. Kelsey Corp. is an accrual-basis, calendar-year domestic corporation which is not part of a consolidated group. In the current tax year, Kelsey recorded over $10 million in gross receipts and ended the year with $9 million in total assets. Which reconciliation schedule-M-1 or M-3-should Kelsey file along with its corporate tax return for the current year?
a. Only Schedule M-1 can be filed.
b. Schedule M-3 is required.
c. Depends on how many years the corporation has been in existence.
3. Indicate for each of the following financial statement items whether it would cause no adjustment or whether its absolute value would be either added to or subtracted from net income per books when computing taxable income on the Schedule M-1.

4. Indicate for each of the following financial statement items whether it would cause no adjustment or whether its absolute value would be either added to or subtracted from net income per books when computing taxable income on the Schedule M-1.

5. Kookaburra Corp. reports net income per books of $575,000 for the current tax year.
Included in this amount are the following items.

Depreciation reported on the current year tax return is $40,000.
Considering only the above information, what is Kookaburra Corp.'s taxable income for the current tax year?
a. $655,000
b. $650,000
c. $640,000

d. $645,000

Transcribed Image Text:

Reconciles Book Income (Loss) with Income per Return Both Schedule M-1 and Schedule M-3 Distinguishes Between Permanent and Temporary Differences Neither Schedule M-1 nor M-3 a. b. Bth Schedule M-1 and Schedule M-3 Schedule M-1 Only C. d. Bth Schedule M-1 and Schedule M-3 Schedule M-3 Only Schedule M-1 Only Both Schedule M-1 and Schedule M-3 Interest Expense a. b. C. d Subtracted from Munidpal Bond Interest Earned Subtracted from Added to Subtracted from Excess of Capital Losss Associated with Purchase Over Capital Gains No adjustment No adjustment Added to No adjustment of Munidpal Bonds No adjustment Subtracted from Added to Added tol Premiums Paid on Key Employee Life Insurance a.No adjustment b.No adjustment C. d. Excess of Book vs.Accrued Warranty Tax Depreciation No adjustment No adjustment Added to Added to Expense No adjustment Subtracted from Subtracted from Added to Subtracted from Added to Item Accrued vacation expense Meals and entertainment expense Depredation expense Inventory shrinkage (accrual based on a percentage of total sales) Amount $50,000 40,000 35,000 5,000