The books of A Corporation, a domestic manufacturer, showed the following for 2018:

Gross Sales $ 7,550,000

Cost of goods sold (excluding depreciation expense) 6,096,000

Equipment depreciation expense 670,000

Cash contributions to qualified public charities 66,000

Officers' life insurance premiums (A Corp. is the beneficiary) 8,500

Life insurance proceeds received through death of corporation president 206,000

Taxes (state, local, and payroll) 42,000

Salaries and other clearly deductible expenses 655,000

Interest income on Bank certificate of deposit 35,900

Interest income on State of Illinois bonds 7,500

Dividend income on IBM stockless than 20% ownership 25,000

Shortterm capital loss on sale of Citigroup stock 37,000

Longterm capital gain on sale of IBM stock 19,500

Prepaid rental income (received in 2018, relating to 2019) 27,500

Additional Information:

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

2. A estimates that bad debts will be $84,000 based on prior years. Actual bad debts for the year amounted to $65,900.

3. A did not begin the tax year with any tax carryovers. In addition, A did not have any balance in its deferred tax liability account at the beginning of 2018. Its allowable MACRS depreciation deduction was $754,000 for the year.

4. A 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 A's net income per books for 2018.

2. Prepare in good form the socalled "Schedule M1," 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:

1. Calculate pretax book income.

2. Calculate taxable income.

3. Identify and categorize differences between pretax book income and taxable income as permanent or temporary differences.

4. Calculate federal income tax expense (i.e., pretax 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 M1).