MFG, a calendar year, accrual basis C corporation, reported $476,183 of net income after tax on its 2014 financial statements.
These financial statements were prepared in accordance with GAAP. The company's financial records reveal the following information:
1. MFG earned a portion of its gross income, $314,800, from a Qualified Domestic Production activity.
This information is only given for purposes of any deductions or credits available to the corporate taxpayer.
2. MFG earned $10,700 of interest on an investment in tax-exempt municipal bonds.
3. MFG's Allowance for Bad Debts balance as of January 1, 2014 was $21,000. Write-offs for the year totaled $4,400, while the yearly addition to the Allowance was $3,700. The balance in the Allowance for Bad Debts as of December 31, 2014 was $20,300.
4. On August 7, 2014, MFG paid a $6,000 fine to a local municipal government for a violation of a local zoning ordinance.
5. MFG's depreciation expense per the books (for the year) was $44,200. Its MACRS depreciation entered on the tax return was $31,000.
6. This (2014) is MFG's second taxable year. In its first taxable year, it realized a $8,800 capital loss. This year, it realized a $31,000 Section 1231 gain on the sale of equipment. This was MFG's only disposition of fixed assets for the year.
7. In its first taxable year, MFG capitalized $6,900 of organizational costs for tax purposes, and elected to amortize the costs over a 180 month period. For book purposes, it expensed the costs in that first year.
8. MFG's federal income tax expense per the books was $245,306 for the year.
REQUIRED:
1. Compute, in schedule format, MFG's taxable income and regular income tax.
2. Prepare a Schedule M-1, Page 5, Form 1120, reconciling MFG's book income and taxable income.
3. Include a separate schedule calculating MFG's income tax per books and its income tax per the tax return. Use the schedule shown in the Forever, Inc. sample corporate problem as a guide.