Because of differences between the measurement of income for federal tax purposes and the measurement of income under generally accepted accounting principles (GAAP), the taxable income reported on Form 1120 (U.S. Corporation Income Tax Return), is usually not the same as the net income reported on the corporations financial statement. As a result, the corporation must reconcile the two numbers so that the IRS can identify the differences between financial statement income and taxable income. Schedule M-1 is used for companies with total assets under $10 million. A more detailed, Schedule M-3 is required for companies with assets of $10 million or more.

This assignment requires you to identify the differences between book income and taxable income and determine if they are permanent or temporary and considered either favorable or unfavorable. You will then need to create an Excel worksheet detailing all the book-tax differences including calculating the following: (1) Book income before federal tax provision (2) Income tax expense (3) Taxable income, and (4) Tax liability

Acme Corporation prepares its financial statements. They use the accrual-method for both book and tax purposes. The company provided the following information relating to its 2021 year-end:

Book-Tax Differences	Book Amount	Permanent/ Temporary	Favorable/ Unfavorable
Life insurance proceeds due to CEOs death	$500,000
Revenue from sales (for both book and tax)	3,000,000
Premiums paid on key-person life insurance	28,000
*Charitable contributions (Tax deduction is limited to 10% of taxable income before the charitable deduction).	750,000
Cost of goods sold (for both book and tax)	1,500,000
Interest income earned on tax-exempt bonds	80,000
Interest expense paid on loan to purchase tax-exempt bonds	65,000
Rental income received and earned in 2021	35,000
Rental income received in 2020 but earned in 2021	40,000
Rental income received in 2021 but not earned by earn-end	70,000
Depreciation (Tax depreciation $95,000)	70,000
Lobbying fees paid to energy industry	85,000
Business meal (restaurant) $30,000 (subject to CAA). entertainment $22,000	52,000
April June accrued bonus (book) payable October 1	150,000
Increase to allowance for D/A (Bad debt write-offs $158,000)	$170,000
Net capital loss	182,000
Federal income tax expense- Y/E, 2021 >>>>>calculate

1. Complete the table above. Identify each book-tax difference as either permanent or temporary and either favorable or unfavorable. If no difference please indicate N/A in both columns.
2. Create an spreadsheet worksheet reconcile with columns for book items, adjustment columns, and taxable items. Be sure to start with book income and identify all of the adjustments necessary to arrive at taxable income. Be sure that the amounts reconcile. Must show the subtotal (1-4) amounts discussed above in paragraph 2.
3. How is federal income tax expense for book purposes calculated? Show the computation on the above mentioned spreadsheet.
4. Compute the corporations tax liability.