Cramer Corporation, a calendar year, accrual basis corporation, reported $1.40 million of net income after tax on its financial statements prepared in accordance with GAAP. The corporations books and records reveal the following information:

• Cramer's federal income tax expense per books was $208,000.
• Cramer's book income included $18,000 of dividends received from a domestic corporation in which Cramer owns a 25 percent stock interest, and $8,000 of dividends from a domestic corporation in which Cramer owns a 5 percent stock interest.
• Cramer recognized $18,000 of capital losses this year and no capital gains.
• Cramer recorded $12,000 of book expense for meals not provided by a restaurant and $14,000 of book expense for entertainment costs.
• Cramer's depreciation expense for book purposes totaled $408,000. MACRS depreciation was $475,000.

Required:

1. Compute Cramer's federal taxable income and regular tax liability.
2. Prepare a Schedule M-1, page 6, Form 1120, reconciling Cramers book and taxable income.