Schedule K
	Check accounting method: Accrual
	Business activity code no. ?
	Business activity ?
	Product or service ?
	Is the corporation a subsidiary in an affiliated group or a parent-subsidiary controlled group? No
	Did any foreign or domestic corporation, partnership, trust, or tax-exempt organization own directly 20% or more - No
	Did any individual or estate own directly 20% or more - complete Part II of Schedule G (Form 1120) (attach Schedule G) - YES
	Income and Deductions	Books	Tax	Difference M-1		Form 1120
	Gross sales	3,250,000	3,250,000	-
	Sales returns and allowances	(50,000)	(50,000)
	Cost of goods sold	(1,920,000)	(1,920,000)
	Dividends received	10,000	10,000			Dividend income is $10,000, all of which qualifies for the 80% dividends-received deduction, line 2, because Company is a 20%-or-more owner.
	Non-Taxable in Interest State bonds	5,000				State bond interest income not taxable
	Taxable Interest Income	5,500	5,500			Received $10,000 of dividends from domestic corporations, $5,000 of tax-exempt interest from state bonds, and $4,000 of taxable interest. It also received $1,500 interest on its business accounts receivable.
	Proceeds from life insurance	9,500				Proceeds not taxable
	Premiums on life insurance	(9,500)				Premiums not deductible
	Total Income	1,300,500	1,295,500	5,000
	Compensation of officers	(170,000)	(170,000)	-		Enter the salaries of $170,000 paid to company officers listed on Schedule E.
	Salaries and wages - indirect	(450,000)	(438,000)			Company is eligible for a $12,000 work opportunity credit figured on Form 5884
	Repairs	(14,000)	(14,000)
	Bad debts	(3,750)	(3,750)			Specific charge-off method of accounting for bad debts. Actual accounts written off during the year total $3,750. See chapter 11 of Publication 535 for information on bad debt deductions.
	Rental expense	(110,000)	(110,000)
	Taxes	(43,750)	(43,750)
	Interest Exp on loan to buy tax-exempt bonds	(850)				Not-deductible for tax purposes
	Other Interest Expense	(27,200)	(27,200)
	Contributions	(40,500)	(32,673)			Company contributed $24,500 to the United Community Fund and $16,000 to the State University Scholarship Fund. The total, $40,500, is more than the limit for deductible contributions, which is 10% of taxable income figured without the contribution deduction and special deductions entered on line 29b. The amount allowable on line 19 is $32,673. The excess, $7,827, not deductible this year, can be carried over to a later yea
	Depreciation - indirect	(18,380)	(20,000)			Book depreciation is $18,380. Tax depreciation from Form 4562 is $24,000. Reduce this amount by the depreciation ($4,000) included in the amount claimed on Cost of Goods Sold. Deduct the balance of $20,000 since it is the depreciation on the assets used in the indirect operations of the business.
	Advertising	(51,420)	(51,420)
	Profit-sharing plan	(32,650)	(32,650)			Company maintains a profit-sharing plan for its employees. Peacock funded the plan with $32,650 in 2014
	Other expenses of operations	(58,000)	(58,000)
	Loss on securities	(3,600)	-			$3,600 is the excess of capital losses over capital gains. The net loss is from the sale of securities. Not deductible for tax purposes.
	Total Deductions	(1,024,100)	(1,001,443)	22,657
	Income before special deductions	276,400	294,057	(17,657)
	Federal income tax accrued	(82,812)				Accrued amounts are not deductible.
	Dividends Received Deduction		(8,000)			Company dividends-received deduction of $8,000 from Schedule C
	Net income per books after tax	193,588	286,057	(92,469)
	Cost of Goods Sold					Form 1125-A
	Inventory at the beginning of the year	126,000
	Purchases	1,345,100
	Cost of Labor	517,100
	Additional Sec 263A costs	85,000				This relates to depreciation
	Other costs	145,200
	Inventory at end of year	(298,400)
	Cost of Goods Sold	1,920,000
	Dividends and Special Deductions					Schedule C
	Dividends from 20% of more owns stock	-80%	10,000			Dividend income is $10,000, all of which qualifies for the 80% dividends-received deduction, line 2, because Comany is a 20%-or-more owner.
	Compensation of Officers	Ownership				Form 1125-E
	James	45%	155,000
	George	15%	31,000
	Samuel	40%	14,000
	Compensation claimed elsewhere on return		(30,000)			COGS
		100%	170,000
	Tax Computation					Schedule J
	Income Tax (no need to calculate)		94,812			Income tax refund during the year $18,000
	General Business Credit		(12,000)			Work Opportunity credit of $12,000
			82,812
	Balance Sheet	Beginning	Ending			Schedule L
	Cash	14,700	28,331
	Accounts Receivable	98,400	103,700
	Inventories	126,000	298,400
	Tax Exempt Securities	100,000	120,000
	Other current assets	26,300	17,266
	Other Investments	100,000	80,000
	Buildings and depreciable assets	272,400	297,700
	Accumulated Depreciation	(88,300)	(104,280)
	Land	20,000	20,000
	Other assets	14,800	18,300
	Total	684,300	879,417
	Accounts Payable	28,500	34,834
	ST Mortgages	4,300	4,300
	Other current liabilities	6,800	7,400
	LT Mortgages	176,700	218,295
	Common Stock	200,000	200,000
	Retained earnings appropriated	30,000	40,000			Additional Rerve for contingecies $10,000
	Retained earnings unappropriated	238,000	374,588			Dividends paid during the year $65,000
	Total	684,300	879,417
	Retained Earnings					Reconcilation Only - Helps with M-2
	Balance, January 1	238,000				From Balance Sheet
	Net profit (before federal income tax)	276,400
	Reserve for contingencies	(10,000)
	Income tax accrued for the year	(82,812)				Income tax accrued $82,812
	Dividends paid during the year	(65,000)				Dividends paid during the year $65,000
	Refund of income tax	18,000
	Balance, December 31	374,588				From Balance Sheet
	Total	532,400	M-2 Schedule
	M-1					Reconciliation of Income (Loss) per Books With Income per Return
	Net Income Per Books	193,588
	Tax accrued					Income tax accrued $82,812
	Excess Capital Losses
	Income subject to tax not recorded
	Non-decutible expenses
	Increased Income
	Tax Exempt Interest					Try to determine where this number came from
	Other Interest
	Tax Deductions not booked
	Decreased Income
	Taxable Income before special deductions	294,057
	M-2					Analysis of Unappropriated Retained Earnings per Books (Line 25, Schedule L)
	Balance Beginning of Year	238,000				From Balance Sheet
	Net Income per books
	Increase in retained earnings	18,000
		449,588				Refund Income Tax
	Retained Earnings Distributions					Dividends Paid
	Reserve for contingencies					Allocated to Appropriated Retained Earnings
	Decrease in Retained Earnings	-
	Retained Earnings Balance end of the Year	374,588				From Balance Sheet

1. Complete the Instructor provided Excel spreadsheet by creating the book and tax column - the difference between book and tax is used for the M-1 and M 2 schedules. 2. Complete the M-1 and M-2 calculations on the Excel Spreadsheet. 1. Complete the Instructor provided Excel spreadsheet by creating the book and tax column - the difference between book and tax is used for the M-1 and M 2 schedules. 2. Complete the M-1 and M-2 calculations on the Excel Spreadsheet