XYZ Corporation reported net income before taxes of $620,000. Included in this a
ID: 2552803 • Letter: X
Question
XYZ Corporation reported net income before taxes of $620,000. Included in this amount is $5,000 of municipal bond interest, and an $18,000 penalty for late payment of payroll taxes.
Differences between accounting income and taxable income are as follows:
Depreciation: Straight-line $40,000; MACRS $50,000
Warranties: Expense on the income statement - $28,000. Actual cash expenditures for warranty work, $13,000
Gain from installment sale: Gain recognized on income statement = $36,000. Recognized for taxes in three equal installments beginning this year.
REQUIRED: Compute taxable income for XYZ.
Accounting income
Permanent differences:
Temporary differences
Taxable income
Accounting income
Permanent differences:
Temporary differences
Taxable income
Explanation / Answer
Accounting income
620,000
Permanent differences:
Municipal bond interest
(5,000)
Penalty for late payment of payroll taxes
18,000
633,000
Temporary differences
Depreciation in excess of Straight line (50,000-40,000)
(10,000)
Warrenty expenses (28,000-15,000)
15,000
Gain recognized (36,000/3*2)
(24,000)
Taxable income
614,000
Accounting income
620,000
Permanent differences:
Municipal bond interest
(5,000)
Penalty for late payment of payroll taxes
18,000
633,000
Temporary differences
Depreciation in excess of Straight line (50,000-40,000)
(10,000)
Warrenty expenses (28,000-15,000)
15,000
Gain recognized (36,000/3*2)
(24,000)
Taxable income
614,000
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