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13 Mar 2019

Why can a corporation’s net income for financial accountingpurposes differ from its taxable income?

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Reid Wolff
Reid WolffLv2
15 Mar 2019

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Jaquelin Corporation (a calendar year taxpayer) has taxable income of $300,000, and its financial records reflect the following for the year.

Federal income taxes paid $110,000

Net operating loss carryforward deducted currently 70,000

Gain recognized this year on an installment sale from a prior year 44,000

Depreciation deducted on tax return (ADS depreciation would have been $10,000) 40,000

Interest income on Iowa state bonds 8,000

Jaquelin Corporation’s current E & P is:

a.

$254,000.

b.

$214,000.

c.

$194,000.

d.

$104,000.

The operating results for Ahmad Corporation, an S corporation, for last year were as follows:

Revenues

Gross sales $2,000,000

Tax-exempt bond interest 2,000

Dividend income 8,000

Section 1231 gain (land) 10,000

Expenses

Cost of goods sold $900,000

Salaries 600,000

Rent 200,000

Utilities 60,000

Depreciation 40,000

Charitable contribution 12,000

Section 179 expense 20,000

Determine the corporation’s net income and its separately stated items.

Determine the corporation’s financial accounting income if the gain on the sale of the land is only $6,000 and depreciation is $32,000 under financial accounting rules.

Determine tax payable

An S corporation has the following shares outstanding on January1, 20X1:

Mary 400 shares

Frank 500 shares

Joe 800 shares

On June 1, Joe sells 300 of his shares of stock to Gary. The Scorporation’s pass-through taxable income is $30,000. What isGary’s pro rata share of the S corporation’s taxable income for20X1?

A. $3,105

B. $5,294

C. $8,823

D. $14,118

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