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35. Cougar, Inc., is a calendar year S Corporation. Cougars Form 1120S shows non-separately stated ordinary income of $80,000 for the year. Johnny owns 40% of the Cougar stock throughout the year. The following information is obtained from the corporate records.

Tax-exempt interest income $ 3,000

Salary paid to Johnny (52,000)

Charitable contributions (6,000)

Dividends received from a non-U.S. corporation 5,000

Short-term capital loss (6,000)

Depreciation recapture income 11,000

Refund of prior state income taxes 5,000

Cost of goods sold (72,000)

Long-term capital loss (7,000)

Administrative expenses (18,000)

Long-term capital gain 14,000

Selling expenses (11,000)

Johnny's Beginning stock basis 32,000

Johnny's additional stock purchases9,000

Beginning AAA31,000

Johnny's loan to corporation20,000

The beginning AAA account balance is given, assume that the beginning balance of the OAA and PTI are zero. Prepare the Form 1120S Schedule M-1 and M-2

3 Form 1120S (2017) Page 5 Schedule M-1 Reconciliation of Income (Loss) per Books With Income (Loss) per Return Note: The corporation may be required to file Schedule M-3 (see instructions) 1 Net income (loss) per books ...... 5 Income recorded on books this year not included Income included on Schedule K, lines 1, 2, 3c, 4, on Schedule K, lines 1 through 10 (itemize): 5a, 6, 7, 8a, 9, and 10, not recorded on books this a Tax-exempt interest $ year (itemize) Expenses recorded on books this year not Deductions included on Schedule K, included on Schedule K, lines 1 through 12 and lines 1 through 12 and 141, not charged 141 (itemize): against book income this year (itemize): a Depreciation $ a Depreciation $ b Travel and entertainment $ 7. Add lines 5 and 6 . . . . 4 Add lines 1 through 3 . 8 Income (loss) (Schedule K, line 18). Line 4 less line 7 Schedule M-2 Analysis of Accumulated Adjustments Account, Other Adjustments Account, and Shareholders' Undistributed Taxable Income Previously Taxed (see instructions) (a) Accumulated (b) Other adjustments (c) Shareholders' undistributed adjustments account account taxable income previously taxed 2 4 5 6 7 8 Balance at beginning of tax year . . . Ordinary income from page 1, line 21... Other additions . . . . . Loss from page 1, line 21 . . . . . . Other reductions . . . . . . . . . . Combine lines 1 through 5. . . . . . . Distributions other than dividend distributions Balance at end of tax year. Subtract line 7 from line 6 Form 1120S (2017) 3 Form 1120S (2017) Page 5 Schedule M-1 Reconciliation of Income (Loss) per Books With Income (Loss) per Return Note: The corporation may be required to file Schedule M-3 (see instructions) 1 Net income (loss) per books ...... 5 Income recorded on books this year not included Income included on Schedule K, lines 1, 2, 3c, 4, on Schedule K, lines 1 through 10 (itemize): 5a, 6, 7, 8a, 9, and 10, not recorded on books this a Tax-exempt interest $ year (itemize) Expenses recorded on books this year not Deductions included on Schedule K, included on Schedule K, lines 1 through 12 and lines 1 through 12 and 141, not charged 141 (itemize): against book income this year (itemize): a Depreciation $ a Depreciation $ b Travel and entertainment $ 7. Add lines 5 and 6 . . . . 4 Add lines 1 through 3 . 8 Income (loss) (Schedule K, line 18). Line 4 less line 7 Schedule M-2 Analysis of Accumulated Adjustments Account, Other Adjustments Account, and Shareholders' Undistributed Taxable Income Previously Taxed (see instructions) (a) Accumulated (b) Other adjustments (c) Shareholders' undistributed adjustments account account taxable income previously taxed 2 4 5 6 7 8 Balance at beginning of tax year . . . Ordinary income from page 1, line 21... Other additions . . . . . Loss from page 1, line 21 . . . . . . Other reductions . . . . . . . . . . Combine lines 1 through 5. . . . . . . Distributions other than dividend distributions Balance at end of tax year. Subtract line 7 from line 6 Form 1120S (2017)

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