[Madhav]

Azure, a C corporation, reports the following:

Pretax book income of $543,000.
Depreciation on the tax return is $20,000 greater than depreciation on the financial statements.
Rent income reportable on the tax return is $36,000 greater than rent income per the financial statements.
Fines for pollution appear as a $10,000 expense in the financial statements.
Interest earned on municipal bonds is $25,000.

What is Azure’s taxable income?

AUD - 76
BEC - 75
FAR - 76
REG - 77

FINISHED.    "If I can do it, so can you".- ME.

LEO MESSI:GOAT

 

Ethics: WA: 93, AICPA: 93

[acardone51]

Hi Madhav,

The question is basically asking you to add or subtract income/expenses based on whether or not they are allowable under the tax code. Start with $543,000 (the given book income)

1) Depreciation is higher on the tax return…thus, for tax purposes, we would subtract that extra $20,000. We are now at $523,000.

2) Rental income is higher on the tax return. This is most likely because, for tax purposes, any prepaid rent or lease cancellation payments are recognized in income immediately…where in GAAP they would be not be counted as income until the period they match with. Therefore, we add the $36,000. We are now at $559,000

3) Although fines would reduced your book income as an expense, you are not allowed to deduct them from your taxes. Therefore, we have to add that expense back in to income (remember our starting point is BOOK income, so that is factoring in this expense of $10k) Since we are not allowing it, we can't deduct it, and thus have to add it back. $569,000

4) Municipal bond interest is not counted in income for taxes, although it of course is for book purposes. So, we have to deduct it from that book income to get to tax income. We are now at $544,000.

You didn't list the actual answer…hope it's $544,000 LOL. Hope that helped!

AUD - 93
BEC - 85
FAR - 90
REG - 91

Done!!!!!

[Madhav]

Yes it is correct. Thanks. I think i got confused due to the word “tax return”.

AUD - 76
BEC - 75
FAR - 76
REG - 77

FINISHED.    "If I can do it, so can you".- ME.

LEO MESSI:GOAT

 

Ethics: WA: 93, AICPA: 93

[Author]

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