C Corporation Tax Return Final

Federal Taxation II

UMPI, Inc. is a calendar-year corporation that began business on January 1, 2017. For 2018, it reported the following information in its current year audited income statement. Notes with important tax information are provided below.

Required:

Identify the book-to-tax adjustments for UMPI

1. Reconcile book income to taxable income on worksheet (below).
2. Complete UMPIs Schedule M-1.
3. Complete UMPIs Form 1120, page 1 line 1a to line 31.

Notes:

1. UMPI owns 10% of the outstanding Home Corp. (HC) stock. Home Corp. reported $2,000,000 of income for the year. UMPI accounted for its investment in HC under the equity method and it recorded its pro rata share of HCs earnings for the year. HC also distributed a $100,000 dividend to UMPI.
2. Of the $20,000 interest income, $5,000 was from Ford Motor, $7,000 was from a Toyota, $6,000 was from a Town of Presque Isle municipal bond, and the remaining $2,000 was from an investment in a CD (certificate of deposit).
3. Life insurance proceeds from death of the CFO.
4. This includes total officer compensation of $3,500,000. The CEO was paid $1,250,000 for salary in 2018 (no one officer received more than $1,000,000 compensation).
5. $2,000 is the portion of interest paid on a loan taken out to obtain a tax exempt municipal bond from the City of Presque Isle.
6. UMPI actually wrote off $48,000 of its accounts receivable as uncollectible.
7. Tax depreciation was $700,000.
8. In the current year, UMPI made $23,500 in actual payments on warranties it provided to customers.
9. UMPI made $750,000 of cash contributions to qualified charities during the year.
10. On January 1 of this year UMPI acquired the assets of another business. In the process it acquired $200,000 of goodwill. At the end of the year, UMPI wrote off $10,000 of the goodwill as impaired.
11. UMPI expensed all of its organizational expenditures for book purposes. It expensed the maximum amount of organizational expenditures allowed for tax purposes.
12. The other expenses do not contain any items with book-tax differences.
13. UMPI received rental income payments in 2018 that relates to 2019. They have not earned the amount as of year-end and was not recorded in the books. The total amount received was $21,500.

Book to Tax Worksheet: Expenses: Compensation Interest expense Advertising Repairs and Maintenance Rent Bad Debt expense Depreciation Warranty expenses Charitable donations Life insurance premiums Meals Goodwill impairment Organizational expenditures Other expenses Total expenses Income before taxes Provision for income taxes Net Income after taxes (7,500,000)4 (5,000)5 (1,350,000) (75,000) (22,000) (51,000)6 (1,000,000)7 (90,000)8 (750,000)9 (45,000) (12,500) (10,000)10 (59,000)11 (140,000)12 ($11.390,000) \$XXXXXX (520,000) $XXXXXX