Schedule M-1 & M-2: Reconciling Income and Analyzing Retained Earnings

This assignment solution focuses on Schedule M-1 and Schedule M-2, which are used for the reconciliation of income and the analysis of unappropriated retained earnings, particularly in the context of Form 1120-F for foreign corporations. It addresses key aspects such as net income reconciliation, tax-exempt interest, and adjustments for items like depreciation, charitable contributions, and travel and entertainment expenses. Additionally, it covers the analysis of unappropriated retained earnings, including the beginning balance, net income, other increases, and distributions, providing a comprehensive overview of these financial schedules. The solution also references specific instructions and reporting requirements, including those related to Schedule M-3, offering insights into compliance and financial reporting for corporations.

SGHEDULESM-l and
(Form 1120-Fl
Departmentof iheTreasury
IntemalRevenueSeMce
Reconciliation of Income (Loss) and Analysis of
UnappropriatedRetained Earningsper Bboks
> Go to www.its.govlFormllmFtorthe latest information. 2@17
i\"tffii
r The cost of entertainmenttickets over
face value (also subject to the 50% limit
under section 27agl).
o The cost of skyboxes over theface
value of nonluxury box seat tickets.
. The part of luxury water travel expenses
not deductible under section 274(n).
r Expensesfor travel as a form of
education.
. Other nondeductibletravel and
entertainment expenses.
Line 7a. Tax-exempt interest. Report
any tax-exempt interest receivedor
qggrued, including any exempt-interest
dividends received as a shareholderin a
mutual fund or other regulated
investment company. Also report this
same amount in item P at the top of
page 2 of Form 1120-F.
Schedule M-2
Line 1. Beginning balance of
unappropriated retained earnings.
Enter the beginning balance of
unappropriated retained earningsper the
set(s)of books taken into account on
Schedule L.
Note: For additional informationfor
Schedule M-2 reporting, see the
Instructions for Schedule M-3 (F(Form
OMB No.1545-0123
) Attach to Form 1120-F.
Reconciliation of lncome (Loss) per Boffi
Note: The corporation maybe reQirireoto fiie scneouiJilli-g-(";6liltrr,
I
2
3
4
Net income (loss)per books .
Federalincome tax per books . .
Excessof capital losses over capital gains
Income subject to tax not recorded on
books this year (itemize): ____{-__-S_O_p-O__
-1arr.--*u+sun*0-[-.&.hta-S,ertdg ----
-EiilnG;
Eile;A 6ii6;-6kJihi; tAil oi
deducted on this return (itemize):
Depreciation. $ -f,OnO
Gharitablecontributions $------------------
Travel and entertainment $---------------
a
b
c
d Other(itemize): _-f'_--__,_,___4
----I-tar-ur-{_4lrq_e__-{r*rnfuur6 Add lines 1 throuqh 5 .
E+lltilltErfiFr Anatysisof unappropriated RetainedEarningsper Books
Balanceat beginningof year
Net income(loss)per books.
Other increaSes(itemize):-___g__l_gr-eg|p_
Isttv$d-+-l-9-9-5---]nr-p_]rrr_Tlx"___--____-
1
2
3
Who Must File
Generally,any foreign corporation that is
ryquired to complete Form 1120-F,
Section ll must complete Schedules M-1
9nd M-2 (Form 1120-F).However,the
following rules apply.
Do not complete Schedules M-1, M-2,
and M-3 if total assets at the end of the
tax year (ScheduleL, line 17, column (d))
are less than 925,000.
Complete Schedule M-3 in lieu of
Schedule M-1 if total assets at the end
of the tax year that are reportableon
Schedule L are $10 million or more.
_ A corporation filing Form 1120-F that
is not requiredto file Schedule M-3 mav
voluntarilyfile Schedule M-3 instead of'
Schedule M-1. See the Instructions for
Schedule M-3 (Form 1120-nfor more
information.
Foreigncorporations that (a) are
required to file a ScheduleM-3 (Form
1120-D and have less than $50 hillion in
total assets at the end of the tax year or
(b) are not required to file a Schelule
Y-.e (qoq l12q-D and votunrarityfite a
Schedule M-3 (Form 1120-R mu6t either
(1) completeScheduleM-3 (Form 1120-D
entirely or (2) complete Schedule M-3
(Form 1120-F)through part I and
complete Schedule M-1 instead of
completing Parts ll and lll of Schedule
M-3 (Form 1120-D. lf the foreign
corporation chooses (2), then Schedule
M-1, line 1 must equal Schedule M-3
(Form 1120-F),Part l, line 11. See the
Instructions for Schedule M-3 (Form
1120-n for more information.
Note: lf Schedule M-3 is completed in
lieu of Schedule M-1, the corporation is
still required to complete Schedule M-2.
Specific Instructions
Schedule M-l
Line 1. Net income (loss) per books.
The foreign corporation must report on
line 1 of Schedule M-1 the net income
(loss)per the set or sets of books taken
into account on Schedule L.
Line 5c. Travel and entedainment
expenses. Include any of the following:
. Meal and entertainmentexpenses not
deductible under section 274(n).
. Expensesfor the use of an
entertainmentfacility.
. The part of businessgifts over g25.
. Expensesof an individual over $2,000
that are allocableto conventionson
cruise ships.
r Employeeachievementawards over
$400. fi2}-n.
For Paperwork Reduction Act Notice, see th. Instrucfions for Form ilm-F. Cat. No.49678K SchedufesM-l and M-2 (Form 112O-n?f'1Z