Sunday, August 26, 2007

Regulation

In 1992, Cape Company recorded book income of $140,000. Included in that amount was $50,000 for meal and entertainment expenses and $40,000 for federal income tax expenses. In Cape's schedule M-1 of Form 1120, which reconciles book income and taxable income, what amount should be reported as taxable income.

A. $205,000
B. $190,000
C. $180,000
D. $140,000
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Ragin' Cajun said...

2. A.

A corporation may not deduct federal income taxes for federal tax purposes. In addition, only 50 percent of meals and entertainment may be deducted. As a result, Cape will add back the $140,000 book income federal tax of $40,000 and 50 percent of the meals and entertainment, or $25,000, resulting in taxable income of $205,000.

August 26, 2007 at 9:19 PM

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