61. LO.6 The following information for 2015 relates to Sparrow Corporation, a ca

Question

61. LO.6 The following information for 2015 relates to Sparrow Corporation, a calendar year, accrual method taxpayer Net income per books (after-tax) Federal income tax per books Tax-exempt interest income MACRS depreciation in excess of straight-line depreciation used $174,100 86,600 4,500 for financial purposes Excess of capital loss over capital gains Nondeductible meals and entertainment Interest on loan to purchase tax-exempt bonds 7.200 9,400 5,500 1,100 Based on the above information, use Schedule M-1 of Form 1120, which is available on the IRS website, to determine Sparrow's taxable income for 2015.

Explanation / Answer

Net Income per books is reconciled to taxable income as follows :-

Net Income (After Tax) $174100 Items that decreased net income per books, but did not affect Taxable income :- Add : Federal Income tax per books 86600 Add : Excess of Capital loss over capital gains 9400 Add : Nondeductible meals and entertainment 5500 Add : Interest Paid on Loan incurred to Purchase Tax - exempt bonds 1100 Subtotal 276700 Items that increased net income per books, but did not affect taxable income :- Less : Tax - Exempt Interest Income (4500) Less : Excess of MACRS over book depreciation (7200) Taxable Income 265000

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