Luong Corporation, a calendar year, accrual basis corporation, reported $1 million of net income after tax on its financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the following information:

• Luong’s federal income tax expense per books was $200,000.

• Luong’s book income included $10,000 of dividends received from a domestic corporation in which Luong owns a 25 percent stock interest, and $4,000 of dividends from a domestic corporation in which Luong owns a 5 percent stock interest.

• Luong recognized $10,000 of capital losses this year and no capital gains.

• Luong recorded $8,000 of book expense for meals not provided by a restaurant and $10,000 of book expense for entertainment costs.

• Luong’s depreciation expense for book purposes totaled $400,000. MACRS depreciation was $475,000.

a. Compute Luong’s federal taxable income and regular tax liability.

b. Prepare a Schedule M-1, Form 1120, reconciling Luong’s book and taxable income.