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Comprehensive Problem 11-1

Olive Corporation was formed and began operations on January 1, 2018. The corporation's income statement for the year and the balance sheet at year-end are presented below.

The Olive Corporation Income Statement for the Year Ended December 31, 2018
Gross income from operations			$270,000
Qualified dividends received from a 35 percent-owned domestic corporation			20,000
Total gross income			$290,000
Cost of goods sold			(110,000)
Total income			$180,000
Other expenses:
Compensation of officers	$77,000
Salaries and wages	30,000
Bad debts (direct charge-offs)	9,000
Repairs	3,000
Depreciation for book and tax purposes	10,000
Advertising	2,000
Payroll taxes	16,000
Total other expenses			(147,000)
Net income (before federal income tax expense)			$33,000
The Olive Corporation Balance Sheet as of December 31, 2018
Assets:
Cash	$30,000
Accounts receivable	20,000
Inventory (at cost)	70,000
Equipment	90,000
Less: accumulated depreciation	(10,000)
Total assets			$200,000
Liabilities and owners' equity:
Accounts payable	$ 6,200
Note payable (due in 10 years)	85,000
Common stock	80,000
Retained earnings	28,800
Total liabilities and owners' equity			$200,000

The corporation made estimated tax payments of $5,000 and the corporation's book federal income tax expense is equal to the federal tax liability. Assume any overpayment is credited to the 2019 estimated tax.

Schedule M-1	Reconciliation of Income (Loss) per Books With Income per Return
	Note: The corporation may be required to file Schedule M-3. See instructions.

1	Net income (loss) per books . . . . . . . . . . . . .
2	Federal income tax per books . . . . . . . . . . . .
3	Excess of capital losses over capital gains . . . .
4	Income subject to tax not recorded on books this year (itemize): _ _ _ _ _ _ _ _ _ _ _ _
	_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
5	Expenses recorded on books this year not deducted on this return (itemize):
a	Depreciation . . . . . . . . . . . . . $ _ _ _ _ _ _ _
b	Charitable contributions . . . . $ _ _ _ _ _ _ _
c	Travel and entertainment . . . $ _ _ _ _ _ _ _
	_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
6	Add lines 1 through 5 . . . . . . . . . . . . . . . . . .

7	Income recorded on books this year not included on this return (itemize):
	Tax-exempt interest $ _ _ _ _ _ _ _ _ _ _ _ _ _
	_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
	_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
8	Deductions on this return not charged against book income this year (itemize):
a	Depreciation . . . . . . . . . . . . $ _ _ _ _ _ _ _ _
b	Charitable contributions . . . . . . $ _ _ _ _ _ _ _
	_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
	_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
9	Add lines 7 and 8 . . . . . . . . . . . . . . . . . . . . . .
10	Income (page 1, line 28)line 6 less line 9 . . . .

Schedule M-2

Analysis of Unappropriated Retained Earnings per Books (Line 25, Schedule L)

1	Balance at beginning of year . . . . . . . . . . . .		5	Distributions:	a Cash . . . . . . . . . . . . . . . . . . . .
2	Net income (loss) per books . . . . . . . . . . . . .				b Stock . . . . . . . . . . . . . . . . . . .
3	Other increases (itemize): _ _ _ _ _ _ _ _ _				c Property . . . . . . . . . . . . . . . . .
	_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _		6	Other decreases (itemize):_ _ _ _ _ _ _ _ _ _ _ _
	_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _		7	Add lines 5 and 6 . . . . . . . . . . . . . . . . . . .
4	Add lines 1, 2, and 3 . . . . . . . . . . . . . . . . . . .		8	Balance at end of year (line 4 less line 7)