Reference no: EM133037655
Question - TSK Corp. operates a cloud data storage company. Scott, the president owns 40% of the stock. In 2020, TSK Corp. had Book Net Income of $800,000.The following items were included in Book Net Income:
Dividend income 20,000
Interest income 10,000
Long term capital gain 8,000
Gain on property sale 25,000
Federal tax expense 213,000
State income tax expense 50,000
Further discussion with Scott revealed the following additional information:
-The corporation is a calendar year end and uses the accrual method of accounting.
-The dividends were from a domestic corporation and TSK owns 10 % of this stock.
-Interest income is from US Treasury Bonds.
-The corporation elected installment sale reporting on the property sale. The sale occurred in December, 2020: Selling price $100,000-adjusted basis $75,000 =$25,000 gain. The Corporation will receive five annual payments of $20,000.
-Book expenses included a $5000 penalty for late payment of Federal taxes, and $12,000 premiums on officer life insurance
-Book expenses included an estimated bad debt expense of $40,000. Actual bad debt write offs during the year were $34,000.
-Tax depreciation exceeds book depreciation by $14,000.
-The corporation has a long term capital loss carryover of $6,000 from 2018,
-On July 1, 2020 TSK Corporation paid a distribution of $140,000 to its shareholders. At December 31, 2019, the corporation had accumulated earnings and profits of $ 42,000.
-Assume a 21% tax rate.
Required -
A) Based on the above information, compute TSK's 2020 US taxable income. You may use Form 1120, Schedule M-1 as a guide.
B) Based on the above information, compute TSK's earnings and profits as of December 31, 2020.
C) Briefly indicate the major differences between Form 1120Schedukes M-1 and M-3.
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