A is corrent. The requirement is to determine whether the deduction for net capital loss and business meals for executive out-of-town travel would be reported on Schedule M-1 of the US corporate income tax return (Form 1120). Schedule M-1 generally provides a reconciliation of a corporation’s income per books with the corporation’s taxable income before the net operating loss and dividends-received deduction. Since a net capital loss per books would not be deductible for tax purposes, the net capital loss would be added back to book income on Schedule M-1. Since only 50% of business meals is deductible for tax purposes, 50% of business meals would be added back to book income to arrive at taxable income on Schedule M-1.
B is incorrect. Only 50% of business meals is deductible for tax purposes.
C is incorrect. A net capital loss is not deductible for tax purposes.
D is incorrect. Only 50% of business meals is deductible for tax purposes, and a corporation cannot deduct a net capital loss.
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