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Please identify the book-adjustments fav. / unfav. and calculate the tax.

Dividends received from a less-than-20% owned US Corp.; note: 100% of the dividend income is included in gross income for tax purpses; the DRD is included separately in row 29

Does not include any executive compensation in excess of $1,000,000

This does not include federal income taxes

See Depreciation Schedule; you will need to calculate 2020 tax depreciation

This number is used only for illustrative purposes only as most students have not yet covered accounting for income taxes. For purposes of this exercise, assume that this is the correct federal income tax expense.

Corporation has $5,000 NOL carryover

ABC, Inc. - 2020 Book/Tax Reconciliation Worksheet Tax (Dr) Cr $10,000,000 ($500,000) ($4,000,000) $5,500,000 Book. Book-Tax Adjustments Description (Dr) Cr (Dr) - Fav. Cr-Unfav. Revenue from sales $10,000,000 Returnes and allowances ($500,000) Cost of goods sold ($4,000,000) Gross profit $5,500,000 Other income: Dividends $100,000 Municipal bond interest $500,000 Corporate bond interest $20,000 Net capital gains (loss) ($100,000) Gross income $6,020,000 Expenses/Deductions: Salaries2 ($3,000,000) Taxes (state, local and payroll) and licenses ($600,000) Interest - loan used to purchase corporate bonds ($7,500) Interest - loan used to purchase municipal bonds ($5,000)| Depreciation ($21,905) Advertising ($300,000) Employee benefits ($120,000) Entertainment ($50,000) Meals ($70,000) Life insurance premiums (key person) ($21,000) Federal income tax expenses ($383,165) Total expenses/deductions before NOL and DRD ($4,578,570) Net income per books/tax inc before NOL and DRD $1,441,430 NOL carryover from prior year $0 DRD $0 Net income per books/taxable income $1,441,430 ABC, Inc. - 2020 Book/Tax Reconciliation Worksheet Tax (Dr) Cr $10,000,000 ($500,000) ($4,000,000) $5,500,000 Book. Book-Tax Adjustments Description (Dr) Cr (Dr) - Fav. Cr-Unfav. Revenue from sales $10,000,000 Returnes and allowances ($500,000) Cost of goods sold ($4,000,000) Gross profit $5,500,000 Other income: Dividends $100,000 Municipal bond interest $500,000 Corporate bond interest $20,000 Net capital gains (loss) ($100,000) Gross income $6,020,000 Expenses/Deductions: Salaries2 ($3,000,000) Taxes (state, local and payroll) and licenses ($600,000) Interest - loan used to purchase corporate bonds ($7,500) Interest - loan used to purchase municipal bonds ($5,000)| Depreciation ($21,905) Advertising ($300,000) Employee benefits ($120,000) Entertainment ($50,000) Meals ($70,000) Life insurance premiums (key person) ($21,000) Federal income tax expenses ($383,165) Total expenses/deductions before NOL and DRD ($4,578,570) Net income per books/tax inc before NOL and DRD $1,441,430 NOL carryover from prior year $0 DRD $0 Net income per books/taxable income $1,441,430

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