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

question 56

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 a subtraction on Schedule M-1?

• A) Proceeds on key employee life insurance.
• B) Excess of capital losses over capital gains.
• C) Book depreciation in excess of tax depreciation.
• D) Income subject to tax but not recorded on the books.
• E) None of the above.

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Definitions:

Journal Entry

A record in accounting that represents a transaction in the ledger.

Notes Payable

Written promissory notes in which a borrower agrees to pay back the lender at a later date, often with interest.

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.

Dividends

Earnings distributed to a company's shareholders, commonly as a profit disbursement.