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Timpanogos Inc. is an accrual-method calendar-year corporation. For 2018, it reported financial statement income after taxes of $1,152,000. Timpanogos provided the following information relating to its 2018 activities:

Life insurance proceeds as a result of CEOs death	$	200,000
Revenue from sales (for both book and tax purposes)		2,000,000
Premiums paid on the key-person life insurance policies. The policies have no cash surrender value.		21,000
Charitable contributions		180,000
Cost of goods sold for book and tax purposes		300,000
Interest income on tax-exempt bonds issued in 2017		40,000
Interest paid on loan obtained to purchase tax-exempt bonds		45,000
Rental income payments received and earned in 2018		15,000
Rental income payments received in 2017 but earned in 2018		10,000
Rental income payments received in 2018 but not earned by year-end		30,000
MACRS depreciation		55,000
Book Depreciation		25,000
Net capital loss		42,000
Federal income tax expense for books in 2018		500,000

Required: a. Reconcile book income to taxable income for Timpanogos Inc. Be sure to start with book income and identify all of the adjustments necessary to arrive at taxable income.

b. Identify each book-tax difference as either permanent (P) or temporary (T).

c. Complete Schedule M-1 for Timpanogos.

d. Compute Timpanogos Inc.s tax liability for 2018.

Complete this question by entering your answers in the tabs below.

Req A and B

Reconcile book income to taxable income for Timpanogos Inc. Be sure to start with book income and identify all of the adjustments necessary to arrive at taxable income. Identify each book-tax difference as either permanent (P) or temporary (T). (Negative amounts should be indicated by a minus sign.)

Description	Book Income	Book-tax adjustments				Taxable Income
	(Dr) Cr	(Dr)		Cr		(Dr) Cr
Revenue from sales	$2,000,000selected answer correct	not attempted	not attempted	not attempted	not attempted	$2,000,000selected answer correct
Cost of goods sold	(300,000)selected answer correct	0selected answer correct	not attempted	0selected answer correct	not attempted	(300,000)selected answer correct
Gross profit	$1,700,000					$1,700,000
Other income:
Life insurance proceeds from CEOs death	200,000selected answer correct	(200,000)selected answer correct	Pselected answer correct	not attempted	not attempted	0selected answer correct
Interest income on tax-exempt bonds	40,000selected answer correct	(40,000)selected answer correct	Pselected answer correct	not attempted	not attempted	0selected answer correct
Rental income	25,000selected answer correct	(10,000)selected answer correct	Tselected answer correct	30,000selected answer correct	Tselected answer correct	$45,000selected answer correct
Gross income	$1,965,000					$1,745,000
Expenses:
Interest paid to obtain tax-exempt bonds	45,000selected answer correct	not attempted	not attempted	45,000selected answer correct	Pselected answer correct	0selected answer correct
Net capital loss	42,000selected answer correct	not attempted	not attempted	42,000selected answer correct	Tselected answer correct	0selected answer correct
Depreciation	25,000selected answer correct	(30,000)selected answer correct	Tselected answer correct	not attempted	not attempted	(55,000)selected answer correct
Life insurance premiums	21,000selected answer correct	not attempted	not attempted	21,000selected answer correct	Pselected answer correct	0selected answer correct
Federal income tax expense	500,000selected answer correct	not attempted	not attempted	500,000selected answer correct	Pselected answer correct	0selected answer correct
Total expenses before charitable contribution, NOL, and DRD	633,000					(55,000)
Income before charitable contribution, NOL, and DRD	$1,332,000selected answer correct					$0selected answer incorrect
NOL carryover from prior year	0selected answer correct	not attempted	not attempted	not attempted	not attempted	0selected answer correct
Taxable income for charitable contribution limitation purposes		not attempted	not attempted	not attempted	not attempted	$0
Charitable contributions	(180,000)selected answer correct	not attempted	not attempted	0selected answer incorrect	Tselected answer correct	not attempted
Book/Taxable income	$1,152,000	$(280,000)		$638,000		$0

Req C

Complete Schedule M-1 for Timpanogos. (Enter all values as positive numbers.)

Schedule M-1: Reconciliation of Income (Loss) per Books With Income per Return
1.	Net income (loss) per books	$1,152,000selected answer correct
2.	Federal income tax per books	500,000selected answer correct
3.	Excess of capital losses over capital gains	42,000selected answer correct
4.	Income subject to tax not recorded on books this year (itemize):
	Rental income	0selected answer incorrect
5.	Expenses recorded on books this year not deducted on this return (itemize):
	a. Depreciation	0selected answer correct
	b. Charitable contributions	0selected answer incorrect
	c. Travel and entertainment	0selected answer correct
	Interest paid to obtain tax-exempt bonds	0selected answer incorrect
	Life insurance premiums	21,000selected answer correct
6.	Total	1,715,000
7.	Income recorded on books this year not included on this return (itemize):
	Tax-exempt interest	$40,000selected answer correct
	Life insurance proceeds from CEOs death	200,000selected answer correct
	Rental income	0selected answer incorrect
8.	Deductions on this return not charged against book income this year (itemize):
	a. Depreciation	30,000selected answer correct
	b. Charitable contributions	$0selected answer correct
	Sec. 263A costs	0selected answer correct
9.	Total	$270,000
10.	Income	$1,445,000

Req D

Compute Timpanogos Inc.s tax liability for 2018.

Tax liability	$0selected answer incorrect