or both book and tax purposes) $2,000,000 Premiums paid on the key-person life insurance policies. The policies have no cash surrender value.
Timpanogos Inc. is an accrual-method, calendar-year corporation. For 2020, it reported financial statement income after taxes of $1,342,000. Timpanogos provided the following information relating to its 2020 activities:
|
Life insurance proceeds as a result of CEO’s death |
$200,000 |
|
Revenue from sales (for both book and tax purposes) |
$2,000,000 |
|
Premiums paid on the key-person life insurance policies. |
|
|
The policies have no cash surrender value. |
$21,000 |
|
Charitable contributions |
$180,000 |
|
Cost of goods sold for book and tax purposes |
$300,000 |
|
Interest income on tax-exempt bonds |
$40,000 |
|
Interest paid on loan obtained to purchase tax-exempt bonds |
$45,000 |
|
Rental income payments received and earned in 2020 |
$15,000 |
|
Rental income payments received in 2019 but earned in 2020 |
$10,000 |
|
Rental income payments received in 2019 but not earned by year-end |
$30,000 |
|
Tax |
$55,000 |
|
Book Depreciation |
$25,000 |
|
Net capital loss |
$42,000 |
|
Federal income tax expense for books in 2020 |
$310000 |
Required:
- Reconcile book income to taxable income for Timpanogos Inc. Be sure to start with book income and identify all of the adjustments necessary to arrive at taxable income.
- Identify each book–tax difference as either permanent or temporary
- Complete Schedule M-1 for Timpanogos.
- Compute Timpanogos Inc.’s tax liability for 2020.
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