Before Incorporating, Joe used his financial books under the Cash method to calculate his taxes. However, after incorporating he has to follow GAAP accounting for Be You Sailing, Corp. and wonders how different his tax income is going to be. What four key categories does Joe need to think through in order to reconcile corporate book income to corporate taxable income?

Identify how Joe will need to calculate Taxable Income (end) from Book Income (start) he would need to (select from these answers, a-c, for 43-46)

a. added (included)

b. subtracted (taken off)

c. not relevant

From the Books

Income that is taxable but was not recorded on the books should be __________

Income recorded on the books but is not taxable this year ____________

Deduction on the tax return but not on the books _______________

Assume, in 2018, Be You Sailing, an accrual basis corporation, reported book income of $2,000,000. Including $100,000 of municipal bond interest, an expense for $10,000 in non-deductible loan interest for the purchase of the bonds. Also $300,000 was recorded for depreciation on the book, but tax depreciation was $450,000. Federal income tax was included as an expense on the books as 210,000. What amount should Be You Sailings Taxable Income be as reconciled on the schedule M-1 From 1120? ___________

1. 2,460,000
2. 2,420,000
3. 2,200,000
4. 1,970,000
5. 1,740,000
6. 1,670,000
7. 1,660,000
8. 1,710,000

Expenses on the books that are disallowed for tax this year (or ever)