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Grim Corporation has income and expenses for its current fiscal year, recorded under generally accepted accounting principles, as shown in the following schedule. In addition,
Grim Corporation has income and expenses for its current fiscal year, recorded under generally accepted accounting principles, as shown in the following schedule. In addition, a review of Grim's books and records reveals the following information: Sales revenue Cost of goods sold Gross profit Meals and entertainment expense Bad debt expense Depreciation expense Other operating expenses Contingent loss Income before taxes Federal income tax expense Net income GAAP Book Income $ 2,000,000 (1,200,000 $ 800,000 (100,000) (30,000) (80,000) (220,000 (50,000 $ 320,000 (80,000) $ 240,000 Grim expensed, for book purposes, meals totaling $46,000 and entertainment costs totaling $54,000. Further detail shows that $40,000 of the meals were provided by a restaurant and the remaining $6,000 were not provided by a restaurant. These costs were incurred by Grim sales personnel, are reasonable in amount, and are documented in company records. . During January of the current year, Grim was sued by one of its employees as a result of a work-related accident. The suit has not yet gone to court. However, Grim's auditors required the company to record a contingent liability (and related book expense) for $50,000, reflecting the company's likely liability from the suit. Grim recorded federal income tax expense for book purposes of $80,000. Grim used the reserve method for calculating bad debt expenses for book purposes. Its book income statement reflects bad debt expense of $30,000, calculated as 1.5 percent of sales revenue. Actual write-offs of accounts receivable during the year totaled $22,000. MACRS depreciation for the year totals $95,000. Required: a. Complete the following table, reflecting Grim's book/tax differences for the current year, whether such differences are positive (increase taxable income) or negative (decrease taxable income), and the final numbers to be included in the calculation of taxable income on Grim's tax return. b. Prepare a Schedule M-1, page 6, Form 1120, reconciling Grim's book and taxable income. Required A Required B Complete the following table, reflecting Grim's book/tax differences for the current year, whether such differences are positive increase taxable income) or negative (decrease taxable income), and the final numbers to be included in the calculation of taxable income on Grim's tax return. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.) GAAP Book Income Book/Tax Differences Taxable Income Sales revenue Cost of goods sold Gross profit Meals and entertainment expense Bad debt expense Depreciation expense Other operating expenses Contingent loss Income before taxes Federal income tax expense Net income Required A Required B Prepare a Schedule M-1, page 6, Form 1120, reconciling Grim's book and taxable income. (Any Expenses (Line 5) and Deductions (Line 8) that are not included under Depreciation, Charitable Contributions, and Travel and Entertainment should be combined in the corresponding line item "Other". Enter all amounts as positive.) 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. 1 Net income (loss) per books Income recorded on books this year not included on 2 Federal income tax per books this return (itemize): 3 Excess of capital losses over capital gains Tax-exempt interest 4 Income subject to tax not recorded on books this year (itemize) 5 Expenses recorded on books this year not deducted on 8 Deductions on this return not charged against book this return (itemize): income this year (itemize): a Depreciation a Depreciation b Charitable contributions b Charitable contributions c Travel and entertainment c Other (include all items) d Other (include all items) 9 Add lines 7 and 8 6 Add lines 1 through 5 10 Income (page 1, line 28) - line 6 less line 9 THIS FOEMIS A SIMULATION OF AN OFFICIAL STAY FODM IT IS NOT THE OFFICIAL FODM ITSELE DO NOT USE THIS FORM FOR TAY ELLINGS
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