Emerald Corporation, a calendar year and accrual method taxpayer, provides the f
ID: 2563777 • Letter: E
Question
Emerald Corporation, a calendar year and accrual method taxpayer, provides the following information and asks you to prepare Schedule M-1 for 2017: Net income per books (after-tax) Federal income tax per books Tax-exempt interest income Life insurance proceeds received as a result of death of corporate president Interest on loan to purchase tax-exempt bonds Excess of capital losses over capital gains Premiums paid on life insurance policy on life of Emerald's president $257,950 41,750 15,000 150,000 1,500 6,000 7,800 a. Classify each item as being "Added" or "Deducted" on the M-1 schedule Federal income tax per books Tax-exempt interest income Life insurance proceeds received as a result of death of corporate president Interest on loan to purchase tax-exempt bonds Excess of capital losses over capital gains Premiums paid on life insurance policy on life of Emerald's president Added Deducted Deducted Added Added Added · b. What is the taxable income after the M-1 adjustments are made?Explanation / Answer
b. Calculation of Taxable Income after M-1 Adjustments
Particulars
Amount (In$)
Net Income as per Books
257,950
Add: Federal Income Tax
41,750
Add: Interest on Loan to purchase tax exempt bonds
1,500
Add: Excess of Capital losses over capital gains
6,000
Add: Premium paid on life insurance policy of company’s president
7,800
Less: Tax-exempt interest income
(15,000)
Less: Life insurance proceeds as a result of death of president
(150,000)
Net Taxable Income
150,000
c. Preparation of M-1 schedule for 2017
These columns are taken as per M-1 format given in question
S.No.
Particulars
Amount (In$)
Total (in $)
1
Net Income as per Books
257,950
257,950
2
Federal Income Tax
41,750
41,750
3
Excess of Capital losses over capital gains
6,000
6,000
4
Income Subject to tax not recorded on books this year
0
0
5
Expenses recorded on books this year not deducted on this return(itemize):
a. Interest on Loan to purchase tax exempt bonds
b. Premium paid on life insurance policy of company’s president
1,500
7,800
9,300
6
Add Lines 1 through 5
315,000
7
Income included on books this year not included on this return(itemize):
a. Tax-exempt interest income
b. Life insurance proceeds as a result of death of president
15,000
150,000
165,000
8
Deductions on this return not charged against income this year(itemize):
0
0
9
Add lines 7 and 8
165,000
10
Income (Line 6 – Line 9)
150,000
Particulars
Amount (In$)
Net Income as per Books
257,950
Add: Federal Income Tax
41,750
Add: Interest on Loan to purchase tax exempt bonds
1,500
Add: Excess of Capital losses over capital gains
6,000
Add: Premium paid on life insurance policy of company’s president
7,800
Less: Tax-exempt interest income
(15,000)
Less: Life insurance proceeds as a result of death of president
(150,000)
Net Taxable Income
150,000
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