40. The operating results for Peep Corporation, an S corporation, for last year were as follows:

Revenues Gross sales $2,000,000 Tax-exempt bond interest 2,000 Dividend income 8,000 Section 1231 gain (land) 10,000 Expenses Cost of goods sold $900,000 Salaries 600,000 Rent 200,000 Utilities 60,000 Depreciation 40,000 Charitable contribution 12,000 Section 179 expense 20,000

a. Determine the corporation’s net income and its separately stated items.

b. Determine the corporation’s financial accounting income if the gain on the sale of the land is only $6,000 and depreciation is $32,000 under financial accounting rules.

c. Complete a Schedule M-1 for the corporation. You can obtain forms from the IRS Web site (www.irs.gov). Sample filled-in forms are in Appendix C of this text.