Western Corporation, a calendar year, accrual basis corporation, reported $500,000 of net income after tax on its financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the following information: Western’s book income included $15,000 of dividends, received from a domestic corporation in which Western owns less than 1 percent of the outstanding stock. Western’s depreciation expense per books was $55,000, and its MACRS depreciation was $70,000. Western earned $5,000 of interest from municipal bonds and $6,000 of interest from corporate bonds. Western’s capital losses exceeded its capital gains by $2,000. Western’s federal income tax expense per books was $103,000. Required: Compute Western’s federal taxable income and regular tax liability. Prepare a Schedule M-1, page 6, Form 1120, reconciling Western’s book and taxable income.
Western Corporation, a calendar year, accrual basis corporation, reported $500,000 of net income after tax on its financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the following information: Western’s book income included $15,000 of dividends, received from a domestic corporation in which Western owns less than 1 percent of the outstanding stock. Western’s depreciation expense per books was $55,000, and its MACRS depreciation was $70,000. Western earned $5,000 of interest from municipal bonds and $6,000 of interest from corporate bonds. Western’s capital losses exceeded its capital gains by $2,000. Western’s federal income tax expense per books was $103,000. Required: Compute Western’s federal taxable income and regular tax liability. Prepare a Schedule M-1, page 6, Form 1120, reconciling Western’s book and taxable income.
Chapter3: Corporations: Introduction And Operating Rules
Section: Chapter Questions
Problem 55P
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Western Corporation, a calendar year, accrual basis corporation, reported $500,000 of net income after tax on its financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the following information:
- Western’s book income included $15,000 of dividends, received from a domestic corporation in which Western owns less than 1 percent of the outstanding stock.
- Western’s
depreciation expense per books was $55,000, and its MACRS depreciation was $70,000. - Western earned $5,000 of interest from municipal bonds and $6,000 of interest from corporate bonds.
- Western’s capital losses exceeded its
capital gains by $2,000. - Western’s federal income tax expense per books was $103,000.
Required:
- Compute Western’s federal taxable income and regular tax liability.
- Prepare a Schedule M-1, page 6, Form 1120, reconciling Western’s book and taxable income.
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