Chapter 11, Problem 9P

Caloundra Corporation has book income of $ 40,000. Included in the book income is $3,000 of tax-exempt interest, $7,000 of book income tax expense, and a $2,000 nondeductible fine. Also included in book income are $10,000 of dividends. Caloundra received from a 30 percent owned corporation. Using this information and Form 1120 provide the amounts that go on each line on the form.

1. Form 1120, Schedule M-1 Line 1 $__________________
2. Form 1120, Schedule M-1, Line 10 $__________________
3. Form 1120, Page 1, Line 28 $__________________
4. Form 1120, Schedule C, Line 2(a) $ and 2(c) $__________________
5. Form 1120, Schedule C, Line 24 $__________________
6. Form 1120, Page 1, Line 29b $__________________
7. Form 1120, Page 1 , Line 30 $__________________

To determine

Introduction: To operate a business, a taxpayer generally chooses between sole proprietorship, partnership, and corporation form of entity. The corporations can be of either C Corporation or S corporation. The taxpayer needs to understand his business requirements properly for the smooth continuance of his business since each form of entity has different tax treatment. After 2018, a new 21 percent flat tax rate is introduced for corporations. Corporations must include in ordinary taxable income all net capital gains income during the year for tax purposes and then the income is taxed at a regular rate except in certain rare circumstances.

The amount of Line 1 of schedule M-1 of Form 1120.

Answer to Problem 9P

The amount of Line 1 of schedule M-1 of Form 1120 is $\boxed{\$40,000}$ .

Explanation of Solution

Form 1120 of Income Tax Return (ITR) is required to be filled and submitted by Corporations to report its income and various other particulars. As per income tax law, the purpose of filing Form 1120, Schedule M-1 to help in matching and reconciling its book income to income subject to a tax of the corporation computed before NOLs and allowing special deductions such as dividend received deduction. In this Schedule, M-1 left side adjustments for adding back to the book income and right side adjustments for subtraction from the book income to get at taxable income of the Corporation. Items of adjustments to be added to Book income are expenses related to federal income tax, net capital losses, income reported in a tax return but not on the book income, and expenses recorded in books but not subtracted in the tax return.

Thus, the calculation of C Corporation’s current year taxable income is as under:

	Net income (loss) per books	$40,000
Add:	Expenses recorded on the books but not deducted on the tax return: •Tax expenses •Fine	$7,000 $2,000
Less:	The income included in book income but not in tax income: •Tax-exempt interest •Dividend	($3,000) ($10,000)
	Taxable income	36,000

Therefore, the amount of Line 1 of schedule M-1 of Form 1120 that is Net income (loss) per books is $\boxed{\$40,000}$ .

To determine

Introduction: To operate a business, a taxpayer generally chooses between sole proprietorship, partnership, and corporation form of entity. The corporations can be of either C Corporation or S corporation. The taxpayer needs to understand his business requirements properly for the smooth continuance of his business since each form of entity has different tax treatment. After 2018, a new 21 percent flat tax rate is introduced for corporations. Corporations must include in ordinary taxable income all net capital gains income during the year for tax purposes and then the income is taxed at a regular rate except in certain rare circumstances.

The amount of Line 10 of schedule M-1 of Form 1120.

Answer to Problem 9P

The amount of Line 10 of schedule M-1 of Form 1120 that is income after reconciliation per books with income per return is $\boxed{\$36,000}$ .

Explanation of Solution

Form 1120 of Income Tax Return (ITR) is required to be filled and submitted by Corporations to report its income and various other particulars. As per income tax law, the purpose of filing Form 1120, Schedule M-1 to help in matching and reconciling its book income to income subject to a tax of the corporation computed before NOLs and allowing special deductions such as dividend received deduction. In this Schedule, M-1 left side adjustments for adding back to the book income and right side adjustments for subtraction from the book income to get at taxable income of the Corporation. Items of adjustments to be added to Book income are expenses related to federal income tax, net capital losses, income reported in a tax return but not on the book income, and expenses recorded in books but not subtracted in the tax return.

Thus, the calculation of C Corporation’s current year taxable income is as under:

	Net income (loss) per books	$40,000
Add:	Expenses recorded on the books but not deducted on the tax return: •Tax expenses •Fine	$7,000 $2,000
Less:	The income included in book income but not in tax income: •Tax-exempt interest •Dividend	($3,000) ($10,000)
	Taxable income	36,000

Therefore, the amount of Line 10 of schedule M-1 of Form 1120 that is income after reconciliation per books with income per return is $\boxed{\$36,000}$ .

To determine

Introduction: To operate a business, a taxpayer generally chooses between sole proprietorship, partnership, and corporation form of entity. The corporations can be of either C Corporation or S corporation. The taxpayer needs to understand his business requirements properly for the smooth continuance of his business since each form of entity has different tax treatment. After 2018, a new 21 percent flat tax rate is introduced for corporations. Corporations must include in ordinary taxable income all net capital gains income during the year for tax purposes and then the income is taxed at a regular rate except in certain rare circumstances.

The amount of Line 28 of page 1 of Form 1120.

Answer to Problem 9P

The amount of Line 28 of page 1 of Form 1120 is taxable income before special deductions are $\boxed{\$46,000}$ .

Explanation of Solution

Form 1120 of Income Tax Return (ITR) is required to be filled and submitted by Corporations to report its income and various other particulars. As per income tax law, the purpose of filing Form 1120, Schedule M-1 to help in matching and reconciling its book income to income subject to a tax of the corporation computed before NOLs and allowing special deductions such as dividend received deduction.

So, the calculation of C Corporation’s current year taxable income before special deductions is as under:

	Net income (loss) per books	$40,000
Add:	Expenses recorded on the books but not deducted on the tax return: •Tax expenses •Fine	$7,000 $2,000
Less:	The income included in book income but not in tax income: •Tax-exempt interest	($3,000)
	Taxable income	$46,000

Therefore, the amount of Line 28 of page 1 of Form 1120 that is taxable income before special deductions is $\boxed{\$46,000}$ .

To determine

Introduction: To operate a business, a taxpayer generally chooses between sole proprietorship, partnership, and corporation form of entity. The corporations can be of either C Corporation or S corporation. The taxpayer needs to understand his business requirements properly for the smooth continuance of his business since each form of entity has different tax treatment. After 2018, a new 21 percent flat tax rate is introduced for corporations. Corporations must include in ordinary taxable income all net capital gains income during the year for tax purposes and then the income is taxed at a regular rate except in certain rare circumstances.

The amount of Line 2(a) and 2(c) of Schedule C of Form 1120.

Answer to Problem 9P

The amount to be reported in Form 1120, Schedule C, Line 2(a) and 2(c) are $\boxed{\text{\$10,000}}$ and $\boxed{\text{\$6,500}}$ respectively.

Explanation of Solution

Form 1120 of Income Tax Return (ITR) is required to be filled and submitted by Corporations to report its income and various other particulars. In Form 1120, Schedule C is meant for reporting dividends, inclusions, and special deductions and it has three columns such as amounts, percentages, and final amount. Whereas Line 2(a) and 2(c) are for reporting of dividends from domestic corporations owning 20 percent or more but less than 80 percent ownership.

Thus, the calculation of dividend deduction is as under:

  $\begin{array}{l}=\$10,000\times \frac{65}{100}\\ =\$6,500\\ \text{or,}\\ \text{=\$40,000}\times \frac{\text{65}}{100}\\ =\$26,000\\ (\text{whichever is less)}\end{array}$

Therefore, the amount to be reported in Form 1120, Schedule C, Line 2(a) and 2(c) are $\boxed{\text{\$10,000}}$ and $\boxed{\text{\$6,500}}$ respectively.

To determine

Introduction: To operate a business, a taxpayer generally chooses between sole proprietorship, partnership, and corporation form of entity. The corporations can be of either C Corporation or S corporation. The taxpayer needs to understand his business requirements properly for the smooth continuance of his business since each form of entity has different tax treatment. After 2018, a new 21 percent flat tax rate is introduced for corporations. Corporations must include in ordinary taxable income all net capital gains income during the year for tax purposes and then the income is taxed at a regular rate except in certain rare circumstances.

The amount of Line 24 of Schedule C of Form 1120.

Answer to Problem 9P

The amount to be reported in Form 1120, Schedule C, Line 24 is $\boxed{\text{\$6,500}}$ .

Explanation of Solution

Form 1120 of Income Tax Return (ITR) is required to be filled and submitted by Corporations to report its income and various other particulars. In Form 1120, Schedule C is meant for reporting dividends, inclusions, and special deductions and it has three columns such as amounts, percentages, and final amount. In Form 1120, Schedule C, Line 24 is for reporting the total of special deductions.

In the given situation, C Corporations has only dividend income that allows for special deduction in the corporation tax return. So for reporting purposes, C Corporation’s total of special deductions will be equal to the allowed dividend deduction.

Therefore, the amount to be reported in Form 1120, Schedule C, Line 24 is $\boxed{\text{\$6,500}}$ .

To determine

Introduction: To operate a business, a taxpayer generally chooses between sole proprietorship, partnership, and corporation form of entity. The corporations can be of either C Corporation or S corporation. The taxpayer needs to understand his business requirements properly for the smooth continuance of his business since each form of entity has different tax treatment. After 2018, a new 21 percent flat tax rate is introduced for corporations. Corporations must include in ordinary taxable income all net capital gains income during the year for tax purposes and then the income is taxed at a regular rate except in certain rare circumstances.

The amount of Line 29(b) of page 1 of Form 1120.

Answer to Problem 9P

The amount of Line 29(b) of page 1 of Form 1120 is $\boxed{\text{\$6,500}}$ .

Explanation of Solution

Form 1120 of Income Tax Return (ITR) is required to be filled and submitted by Corporations to report its income and various other particulars. In Form 1120, Schedule C is meant for reporting dividends, inclusions, and special deductions and it has three columns such as amounts, percentages, and final amount. In Form 1120, Schedule C, Line 24 is for reporting the total of special deductions and Line 29(b) of page 1 of Form 1120 is the same that Line 29(b) is meant for reporting the total of special deductions copied from Schedule C, Line 24.

In the given situation, C Corporations has only dividend income that allows for special deduction in the corporation tax return. So for reporting purposes, C Corporation’s total of special deductions will be equal to the allowed dividend deduction amounting to $6,500.

Therefore, the amount of Line 29(b) on page 1 of Form 1120 is $\boxed{\text{\$6,500}}$ .

To determine

Introduction: To operate a business, a taxpayer generally chooses between sole proprietorship, partnership, and corporation form of entity. The corporations can be of either C Corporation or S corporation. The taxpayer needs to understand his business requirements properly for the smooth continuance of his business since each form of entity has different tax treatment. After 2018, a new 21 percent flat tax rate is introduced for corporations. Corporations must include in ordinary taxable income all net capital gains income during the year for tax purposes and then the income is taxed at a regular rate except in certain rare circumstances.

The amount of Line 30 of page 1 of Form 1120.

Answer to Problem 9P

The amount of Line 30 of page 1 of Form 1120 is $\boxed{\text{\$39,500}}$ .

Explanation of Solution

Form 1120 of Income Tax Return (ITR) is required to be filled and submitted by Corporations to report its income and various other particulars. In Form 1120, Line 30 is for reporting taxable income of the corporation arrived after allowing special deductions, etc. that is subtracting Line 29(c) from Line 28. Whereas Line 29(c) is the total of NOL deductions and special deductions and Line 28 is taxable income before NOL deductions and special deductions.

In the given situation, C Corporations has only dividend income that allows for special deduction in the corporation tax return. So for reporting purposes, C Corporation’s total of special deductions will be equal to the allowed dividend deduction amounting to $6,500.

(a)	Line 28 of page 1 of Form 1120	$46,000
(b)	Line 29(b) of page 1 of Form 1120	$6,500
(a)-(b)	Line 28 of page 1 of Form 1120 i.e. Taxable Income	$39,500

Therefore, the amount of Line 30 on page 1 of Form 1120 is $\boxed{\text{\$39,500}}$ .