Reconciling Schedules L, M-1, and M-2 with Page 1 income for C Corporations

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Use this procedure to ensure Schedules L, M-1, and M-2 balance and tie back to the Page 1 income. This procedure assumes that you entered the correct amounts, but you need to reconcile rounding differences.

  1. Open the desired client (File > Open Client). Click the Balance Sheet folder and then click the Mc tab.
  2. Choose View > Return Summary (or press CTRL+Q). The Form 1120 Return Summary opens displaying summary information for key amounts on the return. Determine which Page 5 totals need to be balanced.

    If you need to perform the following step 4, 5, or 6, press CTRL+Q after each step to determine if you balanced the appropriate amounts before you proceed to the next step.

  3. Press CTRL+I to return to Screen Mc.
  4. Do one of the following:
    • UltraTax CS automatically rounds for differences between assets and liabilities on Schedule L for all clients based on the amount entered in the Maximum amount for Schedule L rounding field in Screen L-2. For new clients, UltraTax CS defaults to a rounding tolerance of $10. To enter a different threshold amount for new clients, choose Setup > 1120 Corporation > Federal tab > New Client Options and enter the desired amount in the Maximum amount for Schedule L rounding field in that dialog. Enter zero if you do not want UltraTax CS to round differences, or enter a positive number. For existing clients, the amount must be changed in Screen L-2.

      Note: If you do not enter any end-of-year retained earnings balances in Screen L-2, UltraTax CS calculates the end-of-year retained earnings based on information entered in Schedule M-2 and prints the amount from Schedule M-2,line 8 on Schedule L, line 25(d). If you enter a rounding tolerance of $10 in Screen L-2 for Schedule L, UltraTax CS automatically creates an adjustment for either accounts payable or cash when an out-of-balance condition exists between Schedule L total assets and liabilities up to $10.

    • If Schedule M-2, line 8 is less than Schedule L, line 25(d), enter the difference (Schedule L, line 25(d) minus Schedule M-2, line 8) on Schedule M-2, line 3 as rounding.
    • If Schedule M-2, line 8 is greater than Schedule L, line 25(d), enter the difference (Schedule M-2, line 8 minus Schedule L, line 25(d)) on Schedule M-2, line 6 as rounding. Alternatively, you can reconcile the difference between Schedule M-2, line 8 and Schedule L, line 25(d) by adjusting Schedule M-1, line 1, Net income per books. The adjusted net income per books automatically transfers to Schedule M-2, line 2 and affects the Schedule M-1 balance.
  5. Do one of the following:
    • UltraTax CS automatically rounds for differences between taxable income on Page 1, line 28 and Schedule M-1, line 10 for all clients based on the amount entered in the Maximum amount for Schedule M-1 rounding field in Screen Mc. For new clients, UltraTax CS defaults to a rounding tolerance of $10. To enter a different threshold amount for new clients, choose Setup > 1120 Corporation > Federal tab > New Client Options and enter the desired threshold amount in the Maximum amount for Schedule M-1 rounding field in that dialog. Enter zero if you do not want UltraTax CS to round differences, or enter any other positive number. For existing clients, the amount must be changed in Screen Mc.

      Note: If you enter a rounding tolerance of $10 in Screen Mc for Schedule M-1, UltraTax CS automatically creates an adjustment for either line 5 or 8 of Schedule M-1, representing the difference between taxable income on Page 1, line 28 and Schedule M-1, line 10, up to $10.

    • If Schedule M-1, line 10 is less than Page 1, line 28, enter the difference (Page 1, line 28 minus Schedule M-1, line 10) on Schedule M-1, line 5 as rounding.
    • If Schedule M-1, line 10 is greater than Page 1, line 28, enter the difference (Schedule M-1, line 10 minus Page 1, line 28) on Schedule M-1, line 8 as rounding.

    Alternatively, you can reconcile the difference between Schedule M-1, line 10 and Page 1, line 28 by adjusting other deductions on Page 1, line 26.

  6. If Schedule L, line 15d does not equal Schedule L, line 28d, press CTRL+I to access Screen L, and adjust end-of-year cash by the difference.

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