Cramer Corporation, a calendar year, accrual basis corporation, reported $1 million of net income after tax on its financial statements prepared in accordance with GAAP. Use Corporate tax rate schedule. (Enter your answers in whole dollars not in millions.)
The corporation’s books and records reveal the following information:
• Cramer's federal income tax expense per books was $400,000.
• Cramer's book income included $10,000 of dividends received from a domestic corporation in which Cramer owns a 25 percent stock interest, and $4,000 of dividends from a domestic corporation in which Cramer owns a 5 percent stock interest.
• Cramer recognized $10,000 of capital losses this year and no capital gains.
• Cramer recorded $8,000 of book expense for meals and entertainment costs.
• Cramer's depreciation expense for book purposes totaled $400,000. MACRS depreciation was $475,000.
a. Compute Cramer's federal taxable income and regular tax liability.
b. Prepare a Schedule M-1, page 5, Form 1120, reconciling Cramer’s book and taxable income.