Question

The following information for 2019 relates to Sparrow Corporation, a calendar year, accrual method taxpayer:

Net income per books (after-tax) $205,050
Federal income tax expense per books 55,650
Tax-exempt interest income 4,500
MACRS depreciation in excess of straight-line
depreciation used for financial statement purposes
7,200
Excess of capital losses over capital gains 9,400
Nondeductible meals and entertainment 5,500
Interest on loan to purchase tax-exempt bonds 1,100
Regarding items that would be added back on the M–1 schedule, label either "Yes" (it would be added back to net income per books) or "No" (it would not be).
• Federal income tax expense per books
• Excess of capital loss over capital gains
• Tax-exempt interest income
• Excess of MACRS over book depreciation
• Interest on loan to purchase tax-exempt bonds
• Nondeductible meals and entertainment

Answer 1

Given that Sparrow corporation a calendar year, accrual method taxpayer has the following information:

Net income per books (after-tax): $205,050

Federal income tax expense per books: 55,650

Tax-exempt interest income: 4,500

MACRS depreciation in excess of straight-line depreciation used for financial statement purposes: 7,200

Excess of capital losses over capital gains: 9,400

Nondeductible meals and entertainment: 5,500

Interest on loan to purchase tax-exempt bonds: 1,100

Regarding items that would be added back on the M–1 schedule, we have:

• Federal income tax expense per books: Yes

• Excess of capital loss over capital gains: Yes

• Tax-exempt interest income: No

• Excess of MACRS over book depreciation: No

• Interest on loan to purchase tax-exempt bonds: Yes

• Nondeductible meals and entertainment: Yes