Critter World uses the straight-line method of depreciation for book purposes and accelerated depreciation (MACRS) for tax purposes. For the tax year ended December 31, 2021, Critter World purchased and placed in service the following capital additions:
Computers - new (March 17, 2021) $125,000
Office Furniture & Equipment - new (May 1, 2021) $75,000
2021 Mercedes GLE Coup – new (June 18, 2021) $88,000
Store Fixtures - new (August 15, 2021) $250,000

For income tax purposes, Critter World’s policy is to maximize its tax depreciation. Thus, it will claim MACRS, Bonus, and Sec. 179 depreciation when available. Consequently, Critter World has claimed either bonus or Sec. 179 depreciation on all its assets placed in service prior to January 1, 2021. Thus, the prior year's additions are fully depreciated for income tax purposes as of December 31, 2020.

• Additional information pertaining to the 2021 Mercedes GLE Coup for the year
ended December 31, 2021 is:
o Business usage: 100%
o Total miles: 5,280
o The company has written evidence to support the mileage and business
usage.
o The company has a written policy that prohibits personal use of the automobile by employees or members.
o The company does not own or lease any other automobiles.
o The vehicle is used by both officers only for business use.

• The detail of Critter World’s rental expense of $155,500 is as follows:
o Building - $120,000
o Equipment, furniture, and computers - $35,500

• Business meals were all provided by restaurants.

• Critter World’s charitable contributions were all made in cash to qualifying Sec.
501(c)(3) charitable organizations.

• The sales and use tax penalty was paid to the State of Texas.

Prepare Book-to-Tax Reconciliation for Critter World for the year ended
December 31, 2021

Critter World, Inc.
Book to Tax Reconciliation ( Schedule M-1)
Worksheet
Year Ended December 31, 2021
	Per Financial		Book-to-Tax		Per Tax
	Statements		Differences		Return
Revenue
Gross sales	$5,820,000
Sales returns and allowances	($190,000)
Net sales	5,630,000				0
Cost of goods sold	(2,150,000)
Gross Profit	3,480,000				0
Dividends - Received from stock investments
in less than 20% owned U.S. Corporations	22,000
Interest income - state/municipal bonds	12,000
Interest income - certificates of deposit	21,000
Total Income	3,535,000		0		0
Expenses
Salaries - clerical and sales	860,000
Salaries - officers:
Maria Soto	200,000
Julie Ballard	200,000
Taxes - state, local and payroll	230,000
Repairs and maintenance:	55,000
Utilities	60,000
Meals - Business	110,000
Entertainment	75,000
Interest expense:
Loan to purchase state/municipal bonds	8,500
Other business loans	133,000
Advertising	100,000
Rental expense	155,500
Depreciation	325,000
Charitable contributions - cash	30,000
Employee benefit programs	80,000
Premiums on term life insurance - policies
on lives of Maria Soto and Julie Ballard,
Critter World is the designated beneficiary	40,000
Miscellaneous - Sales tax penalty paid to Texas	9,500
Professional fees (accounting services)	25,000
Total Expenses	2,696,500				0
Net income before Federal income tax	838,500				0
Federal income tax expense	(176,085)
Net Income per Financial Statements	$662,415
Taxable Income per Sch. M-1, Line 10
Special deduction (Dividends Received)
Taxable Income per Line 30