The following adjusted revenue and expense accounts appeared in the accounting records of Pashi, Inc., an accrual basis taxpayer, for the year ended December 31, Year 2.

Revenues Net sales$3,000,000Interest18,000Gains on sales of stock5,000Key-man life insurance proceeds100,000Subtotal$3,123,000 Costs and Expenses Cost of goods sold$2,000,000Salaries and wages500,000Bad debt expense13,000Taxes, other than federal income62,000Interest12,000Contributions5,000Depreciation60,000Other40,000Federal income taxes120,000Subtotal$2,812,000 Net Income$311,000

The following additional information is provided: 1. Interest revenue consists of:

Corporate bonds$15,000Municipal bonds3,000

2. Gains on sales of stock consist of the following unrelated corporations:

Ral Corp. (bought in May Year 1, sold in June Year 2)$1,000Blu, Inc. (bought in November Year 1, sold in September Year 2)4,000

3. Pashi, Inc. owned the key-man life insurance policy, paid the premiums, and was the direct beneficiary. The proceeds were collected on the death of the corporation's treasurer. 4. Bad debt expense represents a reasonable addition to Pashi, Inc.'s allowance for uncollectible accounts, under the method consistently used. Actual accounts written off in Year 2 amounted to $4,000. 5. Taxes, other than federal income, consist of:

Payroll taxes$40,000Property taxes20,000Penalty for late payment of taxes2,000

6. Interest expense consists of $11,000 interest on funds borrowed for working capital and $1,000 interest on funds borrowed to buy the municipal bonds. 7. Contributions were all paid in Year 2 to State University, specifically designated for the purchase of laboratory equipment. 8. Depreciation per books is straight-line. For tax purposes, depreciation amounted to $85,000. 9. Other expenses include premiums of $5,000 on the key-man life insurance policy covering the treasurer, who died in December Year 2. 10. Federal income tax paid in Year 2 amounted to $105,000. The difference between the income tax provision and income tax paid is the result of temporary differences.

Scroll down to complete all parts of this task.

Note: Use the data provided in the exhibit to answer this task. Click on the associated cells in column B and choose the item of income or expense that belongs on the described area of Form 1120, Schedule M-1 from the list provided. Note that not all cells have items that apply. No entry is required in either column B or C in those cases. In the associated cells in column C, enter the appropriate amount for the item you selected in column B. Note that not all areas of the M-1 form are presented here.

A B C

#1 Area 1 Income subject to tax not recorded on books:

#2 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#3 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#4 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#5 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#6 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation $0 C)

#7 Area 2 Expenses recorded on books this year not deducted on this return:

#8 B) Choose one: Cost of goods sold, salaries and wages, bad debt expense, taxes other than federal income tax, interest, other, federal income taxes C)

#9 B) Choose one: Cost of goods sold, salaries and wages, bad debt expense, taxes other than federal income tax, interest, other, federal income taxes C)

#10 B) Choose one: Cost of goods sold, salaries and wages, bad debt expense, taxes other than federal income tax, interest, other, federal income taxes C)

#11 B) Choose one: Cost of goods sold, salaries and wages, bad debt expense, taxes other than federal income tax, interest, other, federal income taxes C)

#12 B) Choose one: Cost of goods sold, salaries and wages, bad debt expense, taxes other than federal income tax, interest, other, federal income taxes C)

#13 B) Choose one: Cost of goods sold, salaries and wages, bad debt expense, taxes other than federal income tax, interest, other, federal income taxes C) $0

#14 Area 3 Income recorded on books this year not included on this return:

#15 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#16 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#17 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#18 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#19 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C) $0

#20 Area 4 Deductions on this return not charged against book income:

#21 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#22 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#23 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#24 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C)

#25 B) choose one: interest, life insurance proceeds, gain on sale of stock, sales, depreciation C) $0

Block C is blank and shows as follows:

\begin{tabular}{c|l|l|} \hline A & \multicolumn{2}{|c|}{B} \\ \hline Area 1 & Income subject to tax not recorded & \\ \hline & & FORMATTED RESPONSE \\ \hline RESET & CANCEL ACCEPT \\ \hline \end{tabular} \begin{tabular}{c|l|l|} \hline A & \multicolumn{2}{|c|}{B} \\ \hline Area 1 & Income subject to tax not recorded & \\ \hline & & FORMATTED RESPONSE \\ \hline RESET & CANCEL ACCEPT \\ \hline \end{tabular}