Grim Corporation has income and expenses for its current fiscal year, recorded under generally accepted accounting principles, as shown in the following schedule. In addition, a review of Grim’s books and records reveals the following information:

• Grim expensed, for book purposes, meals totaling $46,000 and entertainment costs totaling $54,000. These costs were incurred by Grim sales personnel, are reasonable in amount, and are documented in company records.
• During January of the current year, Grim was sued by one of its employees as a result of a work-related accident. The suit has not yet gone to court. However, Grim’s auditors required the company to record a contingent liability (and related book expense) for $50,000, reflecting the company’s likely liability from the suit.
• Grim recorded federal income tax expense for book purposes of$80,000.
• Grim used the reserve method for calculating bad debt expenses for book purposes. Its book income statement reflects bad debt expense of $30,000, calculated as 1.5 percent of sales revenue. Actual write offs of accounts receivable during the year totaled $22,000. 
• MACRS depreciation for the year totals $95,000.

a. Complete the following table, reflecting Grim’s book/tax differences for the current year, whether such differences are positive (increase taxable income) or negative (decrease taxable income), and the final numbers to be included in the calculation of taxable income on Grim’s tax return.

b. Prepare a Schedule M-1, page 5, Form 1120, reconciling Grim’s book and taxable income.

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Taxable GAAP Book Income Book/Tax Differences Income Sales revenue $2,000,000 Cost of goods sold (1,200,000) $ 800,000 Net profit Meals and entertainment expense (100,000) Bad debt expense (30,000) Depreciation expense (80,000) Other operating (220,000) expenses Contingent loss (50,000) $ 320,000 Income before taxes Federal income tax (80,000) expense $ 240,000 Net income