When preparing Schedule M1 of Form 1120 which of the followi

When preparing Schedule M-1 of Form 1120, which of the following must be added to net income per books to compute taxable income?

a. 100% of meals and entertainment expense

b. Municipal bond interest

c. Accrued bad debt expense

Solution

The correct answer is Accrued bad debt expense.

The Accrued bad debt expense will be added back to the Net Income since this is not actual bad debt for the Company, it is just a written off from the accounts receivable, i,.e. reduction of assets. Hence for computing taxable income, only the actual bad debt can be deducted. In this case, it has already been deducted, therefore, it needs to be added back to the Net Income.