Reconciliation of Book to Taxable Income

The books of Silverstar Corporation, a domestic manufacturer, showed the following for $2023$:

Gross Sales $ $10,511,000$

Cost of goods sold $($excluding depreciation expense$)8,227,000$

Equipment depreciation expense $703,000$

Cash contributions to qualified public charities $95,000$

Officers' life insurance premiums $($Silverstar Corp. is the beneficiary$)10,500$

Life insurance proceeds received through death of corporation president $250,000$

Taxes $($other than federal income tax; for example, state, local, and payroll$)43,000$

Political contributions to local candidates $12,200$

Salaries and other clearly deductible expenses $681,000$

Interest income on Bank certificate of deposit $42,700$

Interest income on City of Boston bonds $12,700$

Dividend income on IBM stock less than $20\%$ ownership $32,000$

Short term capital loss on sale of Citigroup stock $39,500$

Long term capital gain on sale of IBM stock $21,200$

Prepaid rental income $($received in $2023,$ relating to$/$earned in $2024)29,100$

Additional Information:

$1.$ Silverstar operates on a calendar year. Silverstar Corporation keeps its books in accordance with GAAP. To the extent allowable by law, Silverstar is also an accrual basis taxpayer.

$2.$ Silverstar estimates that bad debts will be $$84,700$ based on prior years. Actual bad debts for the year amounted to $$64,100.$

$3.$ Silverstar did not begin the tax year with any tax carryovers. In addition, Silverstar did not have any balance in its deferred tax liability account at the beginning of $2023.$ Its allowable MACRS depreciation deduction was $$759,000$ for the year.

$4.$ Silverstar did not recognize any capital gains during the last three years, and does not expect to incur significant capital gains within the next five years. Also, assume that the excess charitable contribution deduction is a permanent difference.

$5.$ Finally, assume that the federal corporate income tax rates will remain constant for the foreseeable future.

Required:

$1.$ Prepare in good form a schedule that calculates Silverstar's net income per books for $2023.$

$2.$ Prepare in good form the so called "Schedule M $1,"$ the schedule that reconciles net income per books with taxable income before the dividends received deduction, per the Federal income tax return.

Suggested Approach to Problem:

How

$1.$ Calculate pre tax book income.

$2.$ Calculate taxable income.

$3.$ Identify and categorize differences between pre tax book income and taxable income as permanent or temporary differences.

$4.$ Calculate federal income tax expense $($i$.$e$.,$ pre tax book income adjusted for permanent differences times tax rates$).$ It may help to prepare the deferred tax entry.

$5.$ Reconcile net income per books to taxable income before the dividends received deduction $($i$.$e$.,$ prepare Schedule M $1).$