Q: My question pertains to the CASH to Accrual Conversion worksheet. I want to apply what I learned last week to the current live analysis that I am currently looking at. However, the tax return is not a Partnership like in class, but instead it is an 1120 Corporate tax return. I am wondering if the application is the same? I noticed the Schedule K from 1120 is not the same as the 1065. Would you have a conversion worksheet that uses an 1120 Tax Return?
A: For a C Corp, all the information captured on Schedule K-1 for a partnership or S Corp is reported on Schedule 1120 - the income statement on the first page of Form 1120. For a C Corp there is no equivalent to a Schedule K. It exists but captures very different information, since all the taxable income and deductible expenses are reported on Schedule 1120.
For example, interest income reported at Line 5 on Schedule K is reported at Line 5 on Schedule 1120. No need for any transfer of data...and so on for every other taxable income or tax deductible expense reported on Schedule K and then on Schedule K-1 for the pass-throughs.
Schedule M-1 plays the identical role it plays for a partnership or S Corp. That means that the guidance we provide in our Schedule 1065 Conversion Worksheet for a partnership applies to a C Corp. In fact the conversion process should be much simpler, since the only adjustments to amounts reported on Schedule 1120 come from information in Schedule M-1.
Just focusing on the Conversion Worksheet for Carter Park Mill Works, every reference to Schedule K is eliminated since that information already exists on Schedule 1120. The only adjustments necessary are those indicated by Schedule M-1.
Course overview: Cash Based Income Tax Returns