Cramer Corporation, a calendar year, accrual basis corporation, reported $1 million of net income after tax on its financial statements prepared in accordance with GAAP. Use Corporate tax rate schedule.

The corporations books and records reveal the following information:

Cramer's federal income tax expense per books was $400,000.

Cramer's book income included $10,000 of dividends received from a domestic corporation in which Cramer owns a 25 percent stock interest, and $4,000 of dividends from a domestic corporation in which Cramer owns a 5 percent stock interest.

Cramer recognized $10,000 of capital losses this year and no capital gains.

Cramer recorded $8,000 of book expense for meals and entertainment costs.

Cramer's depreciation expense for book purposes totaled $400,000. MACRS depreciation was $475,000.

a. Compute Cramer's federal taxable income and regular tax liability.

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