ECTA is a calendar-year corporation that began business on January l, 2017. For 2018, it reported the following information in its current year audited income statement. Notes with important tax inforrnation are provided below.

Required:

Identify the book-to-tax adjustments for ECTA

1. Reconcile book income to taxable income on worksheet (below).
2. Complete ECTAs Schedule M-1.
3. Complete ECTAs Form 1120, page 1 line la to line 31.

Notes:

1. ECTA owns of the outstanding Home Corp. (HC) stock. Home Corp. reported $2,000,000 of income for the year. ECTA accounted for its investment in HC under the equity method and it recorded its pro rata share of HC's earnings for the year. HC also distributed a $100,000 dividend to ECTA.
2. Of the $20,000 interest income, $5,000 was from Ford Motor, $7,000 was from a Toyota, $6,000 was from a Town of Presque Isle municipal bond, and the remaining $2,000 was from an investment in a CD (certificate of deposit).
3. Life insurance proceeds from death of the CFO.
4. This includes total officer compensation of $3,500,000. The CEO was paid $ I , 250,000 for salary in 2018 (no one officer received more than $1,000,000 compensation).
5. $2,000 is the portion of interest paid on a loan taken out to obtain a tax exempt municipal bond from the City of Presque Isle.
6. ECTA actually wrote off $48,000 of its accounts receivable as uncollectible.
7. Tax depreciation was $700,000.
8. In the current year, ECTA made $23,500 in actual payments on warranties it provided to customers.
9. ECTA made $750,000 of cash contributions to qualified charities during the year.
10. On January 1 of this year ECTA acquired the assets of another business. In the process it acquired $200,000 of goodwill. At the end of the year, ECTA wrote off $ 10,000 of the goodwill as impaired.
11. ECTA expensed all of its organizational expenditures for book purposes. It expensed the maximum amount of organizational expenditures allowed for tax purposes.
12. The other expenses do not contain any items with book-tax differences.
13. ECTA received rental income payments in 2018 that relates to 2019. They have not earned the amount as of year-end and was not recorded in the books. The total amount received was $21, 500.

Taxable Income statement For current year Adjustments (Dr. Cr. Income Book Income $47,000,000 (34,000,000) Revenue from sales Cost of Goods Sold Gross profit $XXXXXXXXX Other income: 200,000 Income from investment in HC stock Interest income 20,000 Capital gains (losses) Life insurance proceeds (4,000) 315,000 50,000 Miscellaneous income Gross Income Expenses: Compensation Interest expense (7,500,000) (5,000) (1,350,000) (75,000) Advertising Repairs and Maintenance Rent Bad Debt expense (22,000) (51,000) (1,000,000) Depreciation Warranty expenses Charitable donations Life insurance premiums Meals Goodwill impairment Organizational expenditures Other expenses Total expenses Income before taxes Provision for income taxes Net Income after taxes (90,000) (450,000) (45,000) (12,500) (10,000) (59,000)" (140,000) ($11,390,000) SXXXXXXX (520,000) SXXXXXX 1121 Form 2 --- 2018 Income 10 12 U.S. Corporation Income Tax Return OMB No 1545-0123 For calendar year 2018 or tax year beginning 2018, ending 20 Department of the Treasury Internal Revenue Service Go to www.irs.gov/Form 1120 for instructions and the latest information. A Check it: Name B Employer identification number 1a Consolidated retum attach Form 5t) TYPE b ore console LOR Number, street, and room or Suite no. If a P.O.box, see Instructions. C Date incorporated dateretur , 2 Personal holding co. PRINT nach Sch.PH City or town, state or province, country and ZP or foreign postal code D Total assets (see Instructions) 3 Personale corp. Instructio n 4 Schedule M-3 artached O E Check it: (1) Initial return (2) Final retum (3) Name change (4) Address change 1a Gross receipts or sales . . . . . . . . . . . b Returns and allowances . . . . . . . 1b . . . . . . . . . Balance. Subtract line 1b from line 1a . . . . . . . . Cost of goods sold (attach Form 1125-A). . Gross profit. Subtract line 2 from line 10. . . . . Dividends and inclusions (Schedule C, line 23, column (al)... . . Interest Gross rents . . . . . . . . . . . . . . Gross royalties . . . . . . . . . . . . . . . . . . Capital gain net income (attach Schedule D (Form 11200). . . Net gain or loss) from Form 4797, Part II, line 17 (attach Form 4797) . . . . Other income (see instructions-attach statement) . . . . . . . . . . . . . . . Total income. Add lines 3 through 10 . . . . . . . . . . . Compensation of officers (see instructions-attach Form 1125-E) . . . . . . . . Salaries and wages less employment credits) . . . . . . . 13 . . . . . . . Repairs and maintenance . . . . . . . . . . . Bad debts. . . . . . . . . . . . . . 15 . . Pents . . . . . . . . . . . . . . - Taxes and licenses . . . . . . . . . - - - Interest (see instructions) . . . . . . . . . 18 Charitable contributions . . . . . . . 19 . . . . Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) 20 Depletion . . . . . . . Advertising . . . . . . . . . . . . Pension, profit-sharing, etc., plans . . . . . . Employee benefit programs . . . . . 24 . . . . . . . . . . . . . . 25 Reserved for future use. . . . . . . . . . Other deductions (attach statement) . . . . . . 26 27 Total deductions. Add lines 12 through 26. . . . Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11. 28 29a Net operating loss deduction (see instructions) . 29a b Special deductions (Schedule C, line 24, column (c) . . . ... 29b c Add lines 29 and 29b 29c 30 Taxable income. Subtract line 29c from line 28. See Instructions . . . . . . . . 30 31 Total tax (Schedule J, Part I. line 11). . . . . . . . . . . . . . . . . 32 2018 net 965 tax liability paid (Schedule J, Part II, line 12). . . . . . . . . . . . 33 Total payments, credits, and section 965 net tax liability (Schedule J, Part II, line 23) . . Estimated tax penalty. See instructions. Check if Form 2220 is attached . . . . . . 34 $ 35 Amount owed. If line 33 is smaller than the total of lines 31, 32, and 34, enter amount owed 35 36 Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid. . . . 36 37 Enter amount from line 36 you want: Credited to 2019 estimated tax Refunded 37 Under pensities of perjury, I declare that I have examined this roburn, including abompanying schedulesid e nts and to the best of my knowledge and beter, it is true, correct Sign and complete. Declaration of p e r other than trayer) is based on all information of which preparar has any knowledge. May the IRS discuss this retum with the preparer shown below? Here See instructions. Yes No Signature of officer Print/Type preparer's name Preparer's signature Paid Check self-employed Preparer Firm's EIN Use Only Firm's name Firm's address Phone no. For Paperwork Reduction Act Notice, see separate instructions. Cat No. 114500 Form 1120 (2018) Deductions (See instructions for limitations on deductions.) 25 28 27 Tax Refundable Credits, and Payments . 33 Dale PTIN (a) Form 1120 (2018) Page 6 Schedule L Balance Sheets per Books Beginning of tax year End of tax year Assets (c) 1 Cash . . . . . . . . . . 2a Trade notes and accounts receivable. . . b Less allowance for bad debts . . 3 inventories . . . . . . . . . 4 U.S. government obligations . . . . 5 Tax-exempt securities (see instructions) . . Other current assets (attach statement) . Loans to shareholders . . . . . . Mortgage and real estate loans.. . . . Other investments (attach statement). . 10a Buildings and other depreciable assets . b Less accumulated depreciation .. . 11a Depletable assets . . . . . . b Loss accumulated depletion . . . . 12 Land (nat of any amortization). . . . 13a intangible assets (amortizable only . . b Less accumulated amortization. . . . Other assets (attach statement). . . . . 15 Total assets . Liabilities and Shareholders' Equity 16 Accounts payable . . . . . . . . 17 Mortgages, notes, bonda payable in less than 1 year 18 Other current liabilities (attach statement) 19 Loans from shareholders. . . . 20 Mortgages, notes, bonds payable in 1 year or more Other abilities (attach statement). . . Capital stock: a Preferred stock . bCommon stock.... 23 Additional pald-in capital. . . . 24 Retained earnings-Appropriated (attach statement) 25 Retained earnings-Unappropriated . . . 26 Adjustments to shareholders' equity (attach statement) 27 Loss coloreasury stock.. . . . 28 Total abilities and shareholders' equity . 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. Net income (loss) per books. ... Income recorded on books this year 2 Federal income tax per books. . . . not included on this return (itemize): Excess of capital losses over capital gains Tax-exempt interest $ Income subject to tax not recorded on books this year (itemize): 8 Deductions on this return not charged Expenses recorded on books this year not against book income this year itemize): deducted on this return (itemize): a Depreciation . $ a Depreciation . . . b Charitable contributions $ b Charitable contributions. $ C Travel and entertainment. $ 9 Add lines 7 and 8 . . 6 Add lines 1 through 5. . . . 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) Balance at beginning of year . . . 5 Distributions: a Cash. . . . 2 Net Income foss) 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) Form 1120 (2016) Taxable Income statement For current year Adjustments (Dr. Cr. Income Book Income $47,000,000 (34,000,000) Revenue from sales Cost of Goods Sold Gross profit $XXXXXXXXX Other income: 200,000 Income from investment in HC stock Interest income 20,000 Capital gains (losses) Life insurance proceeds (4,000) 315,000 50,000 Miscellaneous income Gross Income Expenses: Compensation Interest expense (7,500,000) (5,000) (1,350,000) (75,000) Advertising Repairs and Maintenance Rent Bad Debt expense (22,000) (51,000) (1,000,000) Depreciation Warranty expenses Charitable donations Life insurance premiums Meals Goodwill impairment Organizational expenditures Other expenses Total expenses Income before taxes Provision for income taxes Net Income after taxes (90,000) (450,000) (45,000) (12,500) (10,000) (59,000)" (140,000) ($11,390,000) SXXXXXXX (520,000) SXXXXXX 1121 Form 2 --- 2018 Income 10 12 U.S. Corporation Income Tax Return OMB No 1545-0123 For calendar year 2018 or tax year beginning 2018, ending 20 Department of the Treasury Internal Revenue Service Go to www.irs.gov/Form 1120 for instructions and the latest information. A Check it: Name B Employer identification number 1a Consolidated retum attach Form 5t) TYPE b ore console LOR Number, street, and room or Suite no. If a P.O.box, see Instructions. C Date incorporated dateretur , 2 Personal holding co. PRINT nach Sch.PH City or town, state or province, country and ZP or foreign postal code D Total assets (see Instructions) 3 Personale corp. Instructio n 4 Schedule M-3 artached O E Check it: (1) Initial return (2) Final retum (3) Name change (4) Address change 1a Gross receipts or sales . . . . . . . . . . . b Returns and allowances . . . . . . . 1b . . . . . . . . . Balance. Subtract line 1b from line 1a . . . . . . . . Cost of goods sold (attach Form 1125-A). . Gross profit. Subtract line 2 from line 10. . . . . Dividends and inclusions (Schedule C, line 23, column (al)... . . Interest Gross rents . . . . . . . . . . . . . . Gross royalties . . . . . . . . . . . . . . . . . . Capital gain net income (attach Schedule D (Form 11200). . . Net gain or loss) from Form 4797, Part II, line 17 (attach Form 4797) . . . . Other income (see instructions-attach statement) . . . . . . . . . . . . . . . Total income. Add lines 3 through 10 . . . . . . . . . . . Compensation of officers (see instructions-attach Form 1125-E) . . . . . . . . Salaries and wages less employment credits) . . . . . . . 13 . . . . . . . Repairs and maintenance . . . . . . . . . . . Bad debts. . . . . . . . . . . . . . 15 . . Pents . . . . . . . . . . . . . . - Taxes and licenses . . . . . . . . . - - - Interest (see instructions) . . . . . . . . . 18 Charitable contributions . . . . . . . 19 . . . . Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) 20 Depletion . . . . . . . Advertising . . . . . . . . . . . . Pension, profit-sharing, etc., plans . . . . . . Employee benefit programs . . . . . 24 . . . . . . . . . . . . . . 25 Reserved for future use. . . . . . . . . . Other deductions (attach statement) . . . . . . 26 27 Total deductions. Add lines 12 through 26. . . . Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11. 28 29a Net operating loss deduction (see instructions) . 29a b Special deductions (Schedule C, line 24, column (c) . . . ... 29b c Add lines 29 and 29b 29c 30 Taxable income. Subtract line 29c from line 28. See Instructions . . . . . . . . 30 31 Total tax (Schedule J, Part I. line 11). . . . . . . . . . . . . . . . . 32 2018 net 965 tax liability paid (Schedule J, Part II, line 12). . . . . . . . . . . . 33 Total payments, credits, and section 965 net tax liability (Schedule J, Part II, line 23) . . Estimated tax penalty. See instructions. Check if Form 2220 is attached . . . . . . 34 $ 35 Amount owed. If line 33 is smaller than the total of lines 31, 32, and 34, enter amount owed 35 36 Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid. . . . 36 37 Enter amount from line 36 you want: Credited to 2019 estimated tax Refunded 37 Under pensities of perjury, I declare that I have examined this roburn, including abompanying schedulesid e nts and to the best of my knowledge and beter, it is true, correct Sign and complete. Declaration of p e r other than trayer) is based on all information of which preparar has any knowledge. May the IRS discuss this retum with the preparer shown below? Here See instructions. Yes No Signature of officer Print/Type preparer's name Preparer's signature Paid Check self-employed Preparer Firm's EIN Use Only Firm's name Firm's address Phone no. For Paperwork Reduction Act Notice, see separate instructions. Cat No. 114500 Form 1120 (2018) Deductions (See instructions for limitations on deductions.) 25 28 27 Tax Refundable Credits, and Payments . 33 Dale PTIN (a) Form 1120 (2018) Page 6 Schedule L Balance Sheets per Books Beginning of tax year End of tax year Assets (c) 1 Cash . . . . . . . . . . 2a Trade notes and accounts receivable. . . b Less allowance for bad debts . . 3 inventories . . . . . . . . . 4 U.S. government obligations . . . . 5 Tax-exempt securities (see instructions) . . Other current assets (attach statement) . Loans to shareholders . . . . . . Mortgage and real estate loans.. . . . Other investments (attach statement). . 10a Buildings and other depreciable assets . b Less accumulated depreciation .. . 11a Depletable assets . . . . . . b Loss accumulated depletion . . . . 12 Land (nat of any amortization). . . . 13a intangible assets (amortizable only . . b Less accumulated amortization. . . . Other assets (attach statement). . . . . 15 Total assets . Liabilities and Shareholders' Equity 16 Accounts payable . . . . . . . . 17 Mortgages, notes, bonda payable in less than 1 year 18 Other current liabilities (attach statement) 19 Loans from shareholders. . . . 20 Mortgages, notes, bonds payable in 1 year or more Other abilities (attach statement). . . Capital stock: a Preferred stock . bCommon stock.... 23 Additional pald-in capital. . . . 24 Retained earnings-Appropriated (attach statement) 25 Retained earnings-Unappropriated . . . 26 Adjustments to shareholders' equity (attach statement) 27 Loss coloreasury stock.. . . . 28 Total abilities and shareholders' equity . 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. Net income (loss) per books. ... Income recorded on books this year 2 Federal income tax per books. . . . not included on this return (itemize): Excess of capital losses over capital gains Tax-exempt interest $ Income subject to tax not recorded on books this year (itemize): 8 Deductions on this return not charged Expenses recorded on books this year not against book income this year itemize): deducted on this return (itemize): a Depreciation . $ a Depreciation . . . b Charitable contributions $ b Charitable contributions. $ C Travel and entertainment. $ 9 Add lines 7 and 8 . . 6 Add lines 1 through 5. . . . 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) Balance at beginning of year . . . 5 Distributions: a Cash. . . . 2 Net Income foss) 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) Form 1120 (2016)