Cookie Corporation has income and expenses for its current fiscal year, recorded under generally accepted accounting principles, as shown in the following schedule. In addition, a review of Cookie's books and records reveals the following information: GAAP Book Income Sales revenue Cost of goods sold Gross profit Meals and entertainment expense Bad debt expense Depreciation expense Other operating expenses Contingent loss Income before taxes $2,000,000 (1,200,000) $ 800,000 (107,000) (30,000) (80,000) (220,000) (50,000) $ 313,000 Federal income tax expense Net income (80,000) $ 233,000 • Cookie expensed, for book purposes, meals totaling $51,000 and entertainment costs totaling $56,000. These costs were incurred by Cookie sales personnel, are reasonable in amount, and are documented in company records. Assume for tax purposes that the meal costs are 50% deductible and that the entertainment costs are not deductible. During January of the current year, Cookie was sued by one of its employees as a result of a work-related accident. The suit has not yet gone to court. However, Cookie's auditors required the company to record a contingent liability (and related hook expensel for $50.000 reflecting the company's likely liability from the suit

Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 18BEA
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Cookie Corporation has income and expenses for its current fiscal year, recorded under generally accepted accounting
principles, as shown in the following schedule. In addition, a review of Cookie's books and records reveals the following
information:
GAAP
Book Income
Sales revenue
Cost of goods sold
Gross profit
Meals and entertainment expense
Bad debt expense
Depreciation expense
Other operating expenses
Contingent loss
Income before taxes
$2,000,000
(1,200,000)
$ 800,000
(107,000)
(30,000)
(80,000)
(220,000)
(50,000)
$ 313,000
Federal income tax expense
Net income
(80,000)
$ 233,000
• Cookie expensed, for book purposes, meals totaling $51,000 and entertainment costs totaling $56,000. These costs were
incurred by Cookie sales personnel, are reasonable in amount, and are documented in company records. Assume for tax
purposes that the meal costs are 50% deductible and that the entertainment costs are not deductible.
During January of the current year, Cookie was sued by one of its employees as a result of a work-related accident. The
suit has not yet gone to court. However, Cookie's auditors required the company to record a contingent liability (and
related hook expensel for $50.000 reflecting the company's likely liability from the suit
Transcribed Image Text:Cookie Corporation has income and expenses for its current fiscal year, recorded under generally accepted accounting principles, as shown in the following schedule. In addition, a review of Cookie's books and records reveals the following information: GAAP Book Income Sales revenue Cost of goods sold Gross profit Meals and entertainment expense Bad debt expense Depreciation expense Other operating expenses Contingent loss Income before taxes $2,000,000 (1,200,000) $ 800,000 (107,000) (30,000) (80,000) (220,000) (50,000) $ 313,000 Federal income tax expense Net income (80,000) $ 233,000 • Cookie expensed, for book purposes, meals totaling $51,000 and entertainment costs totaling $56,000. These costs were incurred by Cookie sales personnel, are reasonable in amount, and are documented in company records. Assume for tax purposes that the meal costs are 50% deductible and that the entertainment costs are not deductible. During January of the current year, Cookie was sued by one of its employees as a result of a work-related accident. The suit has not yet gone to court. However, Cookie's auditors required the company to record a contingent liability (and related hook expensel for $50.000 reflecting the company's likely liability from the suit
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