You will complete page 1 of the Form 1120 and the Schedule M-1 on page 5 of the Form 1120.  You do NOT need to complete the balance sheet or M-2 portions of page 5.  You will also be required to complete a book-to-tax reconciliation (see attached Excel file).  You are given the book numbers and you will input the book-tax temporary or permanent differences in the spreadsheet.  The columns foot across so your book numbers plus the adjustments, negative for debit and positive for credit, will total the taxable number.   C Corporation Tax Return Assignment SMITH Corporation is a calendar-year corporation that began business on January 1, 2014. For 2014, it reported the following information in its current year audited income statement. Notes with important tax information are provided below. Required: Identify the book-to-tax adjustments for SMITH. a) Reconcile book income to taxable income and identify each book–tax difference as temporary or permanent. b) Compute SMITH's regular income tax liability. c) Complete SMITH's Schedule M-1, page 5 of Form 1120 d) Complete SMITH's Form 1120, page 1 (use 2013 form if 2014 form is unavailable). Ignore estimated tax penalties when completing this form. SMITH Corp. Income Stmt for Current Year Book Income Revenue from sales $40,000,000 Cost of goods sold  (27,000,000) Gross profit $13,000,000     Other income: Income from investment in corporate stock      300,000 1 Interest income       20,000 2 Capital gains (losses)       (4,000) Gain or loss from disposition of fixed assets        3,000 3 Miscellaneous income      50,000 Gross Income $13,369,000     Expenses: Compensation    (7,500,000) 4 Stock option compensation      (200,000) 5 Advertising    (1,350,000) Repairs and maintenance      (75,000) Rent      (22,000) Bad debt expense       (41,000) 6 Depreciation    (1,400,000) 7 Warranty expenses       (70,000) 8 Charitable donations      (500,000) 9 Meals and entertainment      (18,000) Goodwill impairment            (30,000) 10 Organizational expenditures        (44,000) 11 Other expenses    (140,000) 12 Total expenses  ($11,390,000) Income before taxes  $ 1,979,000 Provision for income taxes   (720,000) 13 Net Income after taxes   $ 1,259,000 14 NOTES: 1. SMITH owns 30 percent of the outstanding Hobble Corp. (HC) stock. Hobble Corp. reported $1,000,000 of income for the year. SMITH accounted for its investment in HC under the equity method and it recorded its pro rata share of HC's earnings for the year. HC also distributed a $200,000 dividend to SMITH. 2. Of the $20,000 interest income, $5,000 was from a City of Seattle bond (issued in 2013) that was used to fund public activities, $7,000 was from a Tacoma City bond (issued in 2012) used to fund private activities, $6,000 was from a fully taxable corporate bond, and the remaining $2,000 was from a money market account. 3. This gain is from equipment that .

1. You will complete page 1 of the Form 1120 and the Schedule
M-1 on page 5 of the Form 1120. You do NOT need to
complete the balance sheet or M-2 portions of page 5.
You will also be required to complete a book-to-tax
reconciliation (see attached Excel file). You are given the book
numbers and you will input the book-tax temporary or
permanent differences in the spreadsheet. The columns foot
across so your book numbers plus the adjustments, negative for
debit and positive for credit, will total the taxable number.
C Corporation Tax Return Assignment
SMITH Corporation is a calendar-year corporation that began
business on January 1, 2014. For 2014, it reported the following
information in its current year audited income statement. Notes
with important tax information are provided below.
Required:
Identify the book-to-tax adjustments for SMITH.
a) Reconcile book income to taxable income and identify each
book–tax difference as temporary or permanent.
b) Compute SMITH's regular income tax liability.
c) Complete SMITH's Schedule M-1, page 5 of Form 1120
d) Complete SMITH's Form 1120, page 1 (use 2013 form if
2014 form is unavailable). Ignore estimated tax penalties when
completing this form.
SMITH Corp. Income Stmt for Current Year
Book Income
Revenue from sales
$40,000,000

2. Cost of goods sold
(27,000,000)
Gross profit
$13,000,000
Other income:
Income from investment in corporate stock
300,000
1
Interest income
20,000
2
Capital gains (losses)
(4,000)
Gain or loss from disposition of fixed assets

3. 3,000
3
Miscellaneous income
50,000
Gross Income
$13,369,000
Expenses:
Compensation
(7,500,000)
4
Stock option compensation
(200,000)
5
Advertising
(1,350,000)

4. Repairs and maintenance
(75,000)
Rent
(22,000)
Bad debt expense
(41,000)
6
Depreciation
(1,400,000)
7
Warranty expenses
(70,000)
8
Charitable donations
(500,000)
9
Meals and entertainment

5. (18,000)
Goodwill impairment
(30,000)
10
Organizational expenditures
(44,000)
11
Other expenses
(140,000)
12
Total expenses
($11,390,000)
Income before taxes
$ 1,979,000
Provision for income taxes
(720,000)

6. 13
Net Income after taxes
$ 1,259,000
14
NOTES:
1. SMITH owns 30 percent of the outstanding Hobble Corp.
(HC) stock. Hobble Corp. reported $1,000,000 of income for the
year. SMITH accounted for its investment in HC under the
equity method and it recorded its pro rata share of HC's
earnings for the year. HC also distributed a $200,000 dividend
to SMITH.
2. Of the $20,000 interest income, $5,000 was from a City of
Seattle bond (issued in 2013) that was used to fund public
activities, $7,000 was from a Tacoma City bond (issued in
2012) used to fund private activities, $6,000 was from a fully
taxable corporate bond, and the remaining $2,000 was from a
money market account.
3. This gain is from equipment that SMITH purchased in
February and sold in December (i.e., it does not qualify as
§1231 gain).
4. This includes total officer compensation of $2,500,000 (no
one officer received more than $1,000,000 compensation).
5. This amount is the portion of incentive stock option
compensation that vested during the year (recipients are
officers).
6. SMITH actually wrote off $27,000 of its accounts receivable
as uncollectible.
7. Regular tax depreciation was $1,900,000 and AMT (and
ACE) depreciation was $1,700,000.

7. 8. In the current year, SMITH did not make any actual payments
on warranties it provided to customers.
9. SMITH made $500,000 of cash contributions to qualified
charities during the year.
10. On July 1 of this year SMITH acquired the assets of another
business. In the process it acquired $300,000 of goodwill. At
the end of the year, SMITH wrote off $30,000 of the goodwill
as impaired.
11. SMITH expensed all of its organizational expenditures for
book purposes. It expensed the maximum amount of
organizational expenditures allowed for tax purposes.
12. The other expenses do not contain any items with book–tax
differences.
13. This is an estimated tax provision (federal tax expense) for
the year. (In a subsequent class period, we will learn how to
compute the correct tax provision.) Assume that SMITH is not
subject to state income taxes.
14. SMITH calculated that its domestic production activities
deduction (DPAD) is $90,000. This amount is not included on
the audited income statement numbers.