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Luong Corporation, a calendar year, accrual basis corporation, reported $1.20 million of net income after tax on its financial statements prepared in accordance with GAAP.

Luong Corporation, a calendar year, accrual basis corporation, reported $1.20 million of net income after tax on its financial statements prepared in accordance with GAAP. The corporations books and records reveal the following information:

  • Luong's federal income tax expense per books was $204,000.
  • Luong's book income included $14,000 of dividends received from a domestic corporation in which Luong owns a 25 percent stock interest, and $6,000 of dividends from a domestic corporation in which Luong owns a 5 percent stock interest.
  • Luong recognized $14,000 of capital losses this year and no capital gains.
  • Luong recorded $10,000 of book expense for meals not provided by a restaurant and $12,000 of book expense for entertainment costs.
  • Luong's depreciation expense for book purposes totaled $404,000. MACRS depreciation was $475,000.

Required:

  1. Compute Luong's federal taxable income and regular tax liability.
  2. Prepare a Schedule M-1, page 6, Form 1120, reconciling Luongs book and taxable income.

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