Heron Corporation, a Calendar Year, Accrual Basis Taxpayer, Provides the Following

question 89

Essay

Heron Corporation, a calendar year, accrual basis taxpayer, provides the following information for the current year and asks you to prepare Schedule M-1. $\begin{array}{lr}\text { Net income per books (after-tax) } & \$ 258,050 \\\text { Taxable income } & 195,000 \\\text { Federal income tax liability } & 40,950\end{array}$ $$\begin{array} { l r } \text { Interest income from tax-exempt bonds } & 5,000 \\\text { Interest paid on loan incurred to purchase tax-exempt bonds } & 2,000 \\\text { Life insurance proceeds received as a result of death of Heron's } & 100,000 \\\text { president } & \\\text { Premiums paid on policy on life of Heron's president } & 4,500 \\\text { Excess of capital losses over capital gains } & 2,000 \\\text { Retained earnings at beginning of year } & 375,000 \\\text { Cash dividends paid } & 90,000 \\\text { Tax depreciation in excess of book depreciation } & 7,500\end{array}$$

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Definitions:

Deposited Cash

Cash that has been placed into a bank account or financial institution for safekeeping or to earn interest.

Bond Refunding

The process of retiring existing bonds by issuing new bonds, usually to take advantage of lower interest rates.

Advantageous

Providing a benefit or favor, leading to improvement or an increased chance of success.

Book Value

The net value of an asset or liability recorded on the balance sheet, calculated as its original cost minus any depreciation, amortization, or impairment costs.