1120 Tax Return M-1 & M2

[BulldogTom]

Reviewing a tax return for a construction company. At first glance, everything looks OK, but presented kinda funny. But the numbers seem to tie out to the financial statement (prepared by the CPA as well).

Then I start looking at the M1 and M2. There is no correlation between the Book Income on the FS and the M1. There is no book tax depreciation difference noted (and there is a big difference). He gets to the same income number on the tax return, but I have no idea how.

The M2 is more of a mystery. Book Retained earnings are 40K. Tax retained earnings are <780K>

Sched L is off by same amount as retained earnings.

Any idea what would cause this Retained Earnings discrepancy.

Asking the CPA is not an option as the taxpayer is looking to check up on him.

Tom

Hollister, CA

[OldJack]

Probably typical contract "percentage of completion" accounting for financial statement and "completed contract" accounting for tax.

[kcjenkins]

QuickBooks?!?!

[BulldogTom]

Probably typical contract "percentage of completion" accounting for financial statement and "completed contract" accounting for tax.

Notes to the financials say "books are maintained principally on the accrual basis. Revenues from fixed priced construction contracts are recognized on the completed contract method. However, for purposes of these financial statements, revenues from long-term construction contracts are recognized on the percentage of completion method."

Tom

Hollister, CA