Chapter 11, Problem 12AP

Cramer Corporation, a calendar year, accrual basis corporation, reported $1 million of net income after tax on its 2019 financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the following information:

• Cramer’s federal income tax expense per books was $200,000.
• Cramer’s book income included $10,000 of dividends received from a domestic corporation in which Cramer owns a 25 percent stock interest, and $4,000 of dividends from a domestic corporation in which Cramer owns a 5 percent stock interest.
• Cramer recognized $10,000 of capital losses this year and no capital gains.
• Cramer recorded $8,000 of book expense for meals and $10,000 of book expense for entertainment costs.
• Cramer’s depreciation expense for book purposes totaled $400,000. MACRS depreciation was $475,000.

1. a. Compute Cramer’s federal taxable income and regular tax liability.
2. b. Prepare a Schedule M-1, page 6, Form 1120, reconciling Cramer’s book and taxable income.