Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Differences between Book and Tax. Review the following Scenario and determine the items and amounts that would be adjustments on the M-1 (you may fill
- Differences between Book and Tax.
Review the following Scenario and determine the items and amounts that would be adjustments on the M-1 (you may fill out the table and/or the M-1, whichever you prefer).
Notes:
- XYZ owns 30 percent of the outstanding Hobble Corp. (HC) stock. Hobble Corp. reported $1,000,000 of income for the year. XYZ accounted for its investment in HC under the equity method and it recorded its pro rata share of HC's earnings for the year ($1,000,000 30%). HC also distributed a $200,000 dividend to XYZ. For tax purposes, HC reports the actual dividend received as income, not the pro rata share of HCs earnings.
- Of the $20,000 interest income, $5,000 was from a City of Seattle bond, $7,000 was from a Tacoma City bond, $6,000 was from a fully taxable corporate bond, and the remaining $2,000 was from a money market account.
- This gain is from equipment that XYZ purchased in February and sold in December (that is, it does not qualify as 1231 gain).
- This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation).
- This amount is the portion of incentive stock option compensation that was expensed during the year (recipients are officers).
- XYZ actually wrote off $27,000 of its accounts receivable as uncollectible.
- Tax depreciation was $1,900,000.
- In the current year, XYZ did not make any actual payments on warranties it provided to customers.
- XYZ made $500,000 of cash contributions to qualified charities during the year.
- On July 1 of this year XYZ acquired the assets of another business. In the process it acquired $300,000 of goodwill. At the end of the year, XYZ wrote off $30,000 of the goodwill as impaired.
- XYZ expensed all of its organizational expenditures for book purposes. It expensed the maximum amount of organizational expenditures allowed for tax purposes.
- The other expenses do not contain any items with book-tax differences.
- This is an estimated tax provision (federal tax expense) for the year. Assume that XYZ is not subject to state income taxes.
Information Item | Used | Income sub. To tax not In Books. Exp. In books not deductible | Income On Books not Return Exp. In return not on books |
Taxable Income (1120 Line 28) - |
|
|
|
Net Income per Books $1,579,000 |
|
|
|
Federal Income Tax provision - $400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started