Exam Corporation reports taxable income of $800,000 on its federal income tax return. Given the following information from the corporation's records, determine its book income.
Deduction for federal income taxes per
financial accounting records $272,000
Depreciation claimed on the tax return 140,000
Depreciation recorded on the financial accounting records 80,000
Dividends-received deduction 48,000
Life insurance proceeds on death of corporate officer 90,000
$800,000 - $272,000 + ($140,000 - $80,000) + $48,000 + $90,000 = $726,000
The reconciling number on the Schedule M-1 is taxable income before special deductions. Thus, the dividends-received deduction amount would not regularly be included in the Schedule M-1 reconciliation but must be included here since the starting point for the calculation is taxable income.
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