Hearth, Inc. reported $30,000 of depreciation expense on its financial statements. For federal income tax purposes, it deducted depreciation of $35,000. This book/tax difference would result in an increase to net income per books on the Schedule M-1 or M-3.

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The book/tax difference with respect to depreciation would result in a decrease to net income per books on the Schedule M-1 or M-3, as the company deducted more for tax purposes than it reported on its financial statements.