In Completing Schedule M-1 (Reconciliation of Income Per Books with Income

question 7

Multiple Choice

In completing Schedule M-1 (reconciliation of income per books with income per tax return) of Form 1120, to net income per books:

• A)Add tax-exempt interest.
• B)Add excess of capital loss over capital gain.
• C)Add proceeds of term life insurance received by the corporation due to the death of a key employee.
• D)Subtract Federal income tax.
• E)None of the above.

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Definitions:

Efficient Markets Hypothesis

The theory that financial markets are "efficient" in reflecting information about the prices of securities, meaning that existing share prices always incorporate and reflect all relevant information.

Residual Dividend Approach

A policy for setting dividends based on a firm's residual or leftover earnings after financing planned capital expenditures.

Dividend Clienteles

Groups of investors who prefer stocks of companies with a specific dividend policy that matches their income needs and tax situations.