Luong Corporation, a calendar year, accrual basis corporation, reported $1.35 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 $207,000.

Luong's book income included $17,000 of dividends received from a domestic corporation in which Luong owns a 25 percent stock interest, and $7,500 of dividends from a domestic corporation in which Luong owns a 5 percent stock interest.

Luong recognized $17,000 of capital losses this year and no capital gains.

Luong recorded $11,600 of book expense for meals not provided by a restaurant and $13,500 of book expense for entertainment costs.

Luong's depreciation expense for book purposes totaled $407,000. MACRS depreciation was $475,000.

Required:

Compute Luong's federal taxable income and regular tax liability.

Prepare a Schedule M-1, page 6, Form 1120, reconciling Luongs book and taxable income.

Reconciliation of Income (Loss) per Books With Income per Return Reconciliation of Income (Loss) per Books With Income per Return