Schedule M-1 of Form 1120 Is Used to Reconcile Financial

question 19

Multiple Choice

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income. Which of the following items is an addition on Schedule M-1?

• A) Tax depreciation in excess of book depreciation.
• B) Proceeds of life insurance paid on death of key employee.
• C) Excess of capital losses over capital gains.
• D) Tax-exempt interest.
• E) None of these.

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Definitions:

Tax Bracket

A range of income over which the tax rate is constant.

Modigliani-Miller Model

A theory on capital structure that suggests that under certain market conditions (no taxes, no transaction costs), the value of a firm is unaffected by how it is financed.

Restructuring

Restructuring involves modifying the structure or operations of a company, often including changes in financial policies, organizational setup, or business strategy, aimed at increasing profitability or addressing financial challenges.

Market Value

The estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently, and without compulsion.