EFG, a calendar year, accrual basis corporation, reported $479,900 net income after tax on its financial statements prepared in accordance with GAAP. The corporation’s financial records reveal the following information: EFG earned $10,700 on an investment in tax-exempt municipal bonds.EFG’s allowance for bad debts as of January 1 was $21,000. Write-offs for the year totaled $4,400, while the addition to the allowance was $3,700. The allowance as of December 31 was $20,300.On August 7, EFG paid a $6,000 fine to a municipal government for a violation of a local zoning ordinance.EFG’s depreciation expense per books was $44,200, and its MACRS depreciation deduction was $31,000.This is EFG’s second taxable year. In its first taxable year, it recognized an $8,800 net capital loss. This year, it recognized a $31,000 Section 1231 gain on the sale of equipment. This was EFG’s only disposition of noninventory assets.In its first taxable year, EFG capitalized $6,900 organizational costs for tax purposes and elected to amortize the costs over 180 months. For book purposes, it expensed the costs.EFG’s federal income tax expense per books was $151,000. Required:Compute EFG’s taxable income and regular tax.

In order to calculate the taxable income from the book income, all the exempt income and deductible expenses should be subtracted and all the non deductible expense should be added. Bad debt expense is allowed as deductible expense on occurrence basis. MACRS depreciation is allowable deductible expense Fine paid is non deductible expense. Organization cost amortized= 6900/180*12= $ 460 Tax rate for the corporation is 21%

Answered: EFG, a calendar year, accrual basis…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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EFG, a calendar year, accrual basis corporation, reported $479,900 net income after tax on its financial statements prepared in accordance with GAAP. The corporation’s financial records reveal the following information:

EFG earned $10,700 on an investment in tax-exempt municipal bonds.
EFG’s allowance for bad debts as of January 1 was $21,000. Write-offs for the year totaled $4,400, while the addition to the allowance was $3,700. The allowance as of December 31 was $20,300.
On August 7, EFG paid a $6,000 fine to a municipal government for a violation of a local zoning ordinance.
EFG’s depreciation expense per books was $44,200, and its MACRS depreciation deduction was $31,000.
This is EFG’s second taxable year. In its first taxable year, it recognized an $8,800 net capital loss. This year, it recognized a $31,000 Section 1231 gain on the sale of equipment. This was EFG’s only disposition of noninventory assets.
In its first taxable year, EFG capitalized $6,900 organizational costs for tax purposes and elected to amortize the costs over 180 months. For book purposes, it expensed the costs.
EFG’s federal income tax expense per books was $151,000.

Required:

Compute EFG’s taxable income and regular tax.

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