The Loquat Corporation has book net income of $91,000 for the current year. Incl

Question

The Loquat Corporation has book net income of $91,000 for the current year. Included in this figure are the following items, which are reported on the corporation's Schedule M-1, Reconciliation of Income (Loss) per Books with Income per Return. • Federal income tax expense $13,650 • Depreciation deducted on the books which is not deductible for tax purposes 18,200 • Deduction for 50 percent of meals and entertainment expense which is not allowed for tax purposes 8,190 • Deduction for a tax penalty not allowed for tax purposes 3,640 • Tax-exempt interest income included in book income but not in tax income 5,460

Calculate Loquat Corporation's taxable income for the current year based on the information given. $ Feedback

Explanation / Answer

Some incomes and expenses are recorded in accounting may not be allowed for tax purpose, which makes taxable income differs from the net income. Adjustment for taxable income is as below:

Taxable income = Net income + Federal income tax expense + Depreciation not allowed for tax + Deduction not allowed for tax + Tax penalty – Interest income

                        = 91,000 + 13,650 + 18,200 + 8,190 + 3,640 – 5,460

                        = $129,220 (Answer)

Note: Federal income tax expense is not allowed for tax return, although it is deducted to get net income.

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