For the current year, Hammond Corporation reported book income of $2,300,000. Included in that amount was corporate bond interest income of $100,000, municipal bond interest income of $200,000, $80,000 for meals and entertainment expense, $500,000 for corporate federal income tax expense, $150,000 state income tax expense, $75,000 of rental expense, and $20,000 for life insurance premiums on an officer's life (corporation is the beneficiary). Further, the company collected $50,000 in advance rents during the year. In Hammond's Schedule M-1 of Form 1120 for the current year, which reconciles book income to taxable income, what amount should be reported as taxable income?
1. $2,710,000
2. $2,660,000
3. $2,860,000
4. $2,670,000
The correct answer is 1.
Book income
$ 2,300,000
Additions:
Federal income tax expense
500,000
50% of meals and entertainment
40,000
Life insurance premiums
20,000
Advance rents collected
50,000
Subtractions:
Municipal bond interest income
(200,000)
Taxable income
$ 2,710,000
Can someone explain to my why you add the life insurance premiums? Isnt that a permenant differentthat should be subtracted with the municipal bond?
.