Instructions: Provided are the 12/31/15 and 12/31/16 balance sheets for Bulldog, Inc. as well as their 2016 income statement. On the basis of the information provided per the financial statements and the notes given below, prepare the book to tax reconciliation for the 2016 tax year, schedule M1, and schedule M2. This question is related to taxation
	Notes & Hints
	1	Marketable securities are available-for-sale securities that are subject to the mark-to-market rule under GAAP. No securities were purchased or sold this year.
	2	The auditors determined that goodwill was impaired this year and wrote-down goodwill.
		The goodwill is not being amortized for GAAP, but it was purchased in a taxable business (asset) acquisition 4 years ago.
		The goodwill was orginally purchased for $60,000. The other intangible assets consist of patents & trademarks amortized over the same life for GAAP & tax.
	3	New machinery & equipment of $100,000 was purchased this year. There were no sales of fixed assets this year.
		Tax depreciation on the fixed assets this year is $92,000 (this includes all Section 179, Bonus and MACRS depreciation deductions)
	4	The Allowance for Doubtful Accounts is increased by the estimate of bad debt expense and is decreased by write-offs.
	5	$8,000 of the bonuses accrued were not paid by 3/15/17. The accrued bonuses as of 12/31/15 ($5,000) were paid on 5/1/16.
	6	The company owns 25% of the stock of another U.S. company and received dividends this year from the company.
	7	The company has a net operating loss carryover from 2015 of $12,000. The company elected to waive the carryback period.
	8	Both the payroll liabilities account and sales tax payable account meet the recurring items exception rule.
	9	All legal and accounting fees relate to items incurred in the normal course of business and meet the definition of Section 162 business expenses.
	10	Bulldog, Inc. paid dividends totalling $37,260 during 2016.

Bulldog, Inc.
Balance Sheet
		12/31/16		12/31/15
Assets
Cash		$50,000		$52,000
Accounts Receivable	200,000		180,000
Allowance for Doubtful Accounts	(14,000)		(10,000)
Net Accounts Receivable		186,000		170,000
Total Current Assets		236,000		222,000
Investments		180,000		180,000
Marketable Securities		24,000		20,000
Property, Plant, & Equipment	790,000		690,000
Accumulated Depreciation	(220,000)		(170,000)
Net Property, Plant, & Equipment		570,000		520,000
Intangible Assets	60,000		85,000
Accumulated Amortization	(12,000)		(10,000)
Net Intangible Assets		48,000		75,000
Total Long-Term Assets		$822,000		$795,000
TOTAL ASSETS		$1,058,000		$1,017,000
Liabilities
Accounts Payable		$22,000		$30,000
Accrued Salaries		100,000		120,000
Accrued Bonuses		15,000		5,000
Payroll Liabilities		8,200		9,100
Sales Tax Payable		6,100		5,300
Total Current Liabilities		151,300		169,400
Warranty Payable		53,000		62,000
Accrued Loss on Lawsuit		61,000		-
Notes Payable		508,000		516,500
Total Long-Term Liabilities		622,000		578,500
TOTAL LIABILITIES		$773,300		$747,900
Equity
Common Stock		1,000		1,000
Additional Paid-in Capital		60,000		50,000
Retained Earnings		223,700		218,100
TOTAL EQUITY		$284,700		$269,100
TOTAL LIABILITIES & EQUITY		$1,058,000		$1,017,000
Income Statement
Sales Revenue		592,600
Dividend Income		10,000
Unrealized Holding Gains/Losses		4,000
Total Revenues		$606,600
Cost of Goods Sold		215,750
Salary Expense		120,000
Bonus Expense		10,000
Charitable Contributions		6,200
Bad Debt Expense		6,000
Depreciation Expense		50,000
Legal Expenses		9,200
Accounting Fees		8,100
Fines & Penalties		820
Federal Income Tax Expense		32,860
State Income Tax Expense		7,250
Payroll Tax Expense		6,100
Officer's Life Insurance Expense		4,200
Meals & Entertainment Expense		1,260
Loss on Lawsuit		61,000
Loss on Impairment of Goodwill		25,000
Total Expenses		563,740
NET INCOME		$42,860

-After using the notes and hints on the Balance sheet and Income statement, fill out this chart.

Bulldog, Inc.
Book to Tax Reconciliation
December 31, 2016
Book income (loss)		Schedule M1, Line 1
Permanent differences
Total permanent differences	-
Temporary differences
Total temporary differences	-
Federal taxable income (Before NOL & DRD)	-	Schedule M1, Line 10
Net Operating Loss- enter as negative number (if applicable)
Dividends Received Deduction- enter as a negative number (if applicable)
Federal taxable income (After NOL & DRD)	-	Form 1120, Line 30

-After filling out the chart, put numbers into a Schedule L form with M-1 and M-2 sections filled out.