Step 1 Taxable Income Calculation using Microsoft Excel

Open the file titled Tax Compliance and Provision Project Parts I and II.xlsx.

The Financial Statements and Trial Balance can be found in the last 2 worksheets of the Excel workbook.

On the Trial Balance tab, make sure each of the accuracy checks calculated in red throughout the worksheet shows a result of zero.

You will ONLY be working with the PINK tabs for Part I of this project.

Click on the worksheet titled Perm Book-Tax Differences.

For each type of permanent difference, select the appropriate answer in the drop-down boxes within each of the cells shaded in GREEN (16 in total).

Hint you will need to use the Trial Balance tab to help you determine the correct Acct. Number for the applicable cells.

Click on the worksheet titled Temp Book-Tax Differences.

Select the appropriate answer in the drop-down boxes within each of the cells shaded in GREEN (31 in total).

Hint you will need to use the Trial Balance tab to help you determine the correct Acct. Number for the applicable cells.

There are also YELLOW cells (3 in total) that require manual numerical inputs. Enter 0 if applicable.

Once youve fully completed the Perm and Temp Book-Tax Differences tabs, select the Book-to-tax Rec worksheet.

The accuracy checkpoint should show a variance within +/- 1.0 (cell C30).

Save the completed Excel workbook (only the PINK tabs should be completed) and upload to Canvas

Step 2 Preparation of Schedule M-3 (Form 1120)

There are two options for completing step 2. Select one option to complete.

Option 1

Print the file titled Schedule M-3 partially completed.pdf.

Complete Parts II and III of Schedule M-3 by hand:Locate the rows with book-tax differences and input the book-tax adjustment you calculated in Step 1, making sure you properly input the adjustment in the Temporary or Permanent columns on the Schedule M-3.

Compute the resulting taxable income/deduction and input your answer in column (d) of the applicable row.

Hint in Part III, expense amounts are shown as positive amounts. Therefore, if a book-tax difference reduces book expense, you will show a negative number in the Temporary or Permanent columns.

The book-tax differences associated with capital losses and income tax expense have already been completed for you.

In Part III, total each column in Row 38 column (a) has already been totaled for you.

in Part II, subtotal each column in Row 26 as instructed on the form column (a) has already been subtotaled for you.

In Part II Line 27, fill in the amounts you totaled for each column in (d) above.

In Part II, input the total for each column in Row 30, following the specific instructions on the form.

Checkpoint Schedule M-3 Part II Row 30 column (d) should equal the taxable income you calculated in Step 1 (on the Book-to-tax Rec Excel worksheet).

Scan the completed Schedule M-3 and upload to Canvas.

Option 2

Access a fill-able version of Schedule M-3 on the IRS site (Links to an external site.)Links to an external site.

Download the form to your hard drive.

Open the file titled Schedule M-3 partially completed.pdf and input all information found in that form into your fill-able version of Schedule M-3.

Follow the instructions covered in Option 1, #2 above.

Checkpoint Schedule M-3 Part II Row 30 column (d) should equal the taxable income you calculated in Step 1 (on the Book-to-tax Rec Excel worksheet).