Question

In: Accounting

Please help clarify the steps to calculate corporate taxable income for the year based on the...

Please help clarify the steps to calculate corporate taxable income for the year based on the following financial information (book versus tax income). If any information is needed please ask before shutting down the question as incomplete.

Apex Corporation was incorporated on January 1, 2017. Here is the income & balance sheet statement for Apex Corp. for December 31, 2017.

Revenue from sales

40,000,000

Cost of goods sold

27,000,000

Gross profit

13,000,000

Other income

Income from investment in corporate stock

300,000

Interest income

20,000

Capital gains (losses)

-4000

Gain or loss from disposition of fixed assets

3,000

Miscellaneous income

50,000

Gross income

13,369,000

Expenses

Compensation

7,500,000

Stock option compensation

200,000

Advertising

1,350,000

Repairs and maintenance

75,000

Rent

22,000

Bad debt expense

41,000

Depreciation

1,400,000

Warranty expenses

70,000

Charitable donations

500,000

Meals

18,000

Goodwill impairment

30,000

Organizational expenditures

44,000

Other expenses

140,000

Total expenses

11,390,000

Income before taxes

1,979,000

Provision for income taxes

720,000

Net income before taxes

1,259,000

                                   APEX Corporation Balance Sheet

January 1, 2017 (in $)

Assets

Current Assets

Cash

                 580,000

Investment in Bonds

Accounts Receivable

                 470,000

Less Allowance for bad debts

                             -  

Accounts Receivable (net)

                 470,000

Inventory

                 300,000

Total Current Assets

              1,350,000

Non Current Assets

Fixed Assets

           21,170,000

Less Accum. Depreciation

                             -  

Fixed Assets (net)

           21,170,000

Life Insurance

Investments in stocks

           10,050,000

Goodwill

                 120,000

Total Noncurrent Assets

           31,340,000

Total Assets

           32,690,000

Liabilities and Shareholders' Equity

Current Liabilities

Accounts Payable

                 370,000

Reserve for Warranties

                 800,000

Total Current Liabilities

              1,170,000

Non Current Liabilities

Long -term debt

           19,000,000

Deferred compensation

                             -  

Deferred tax Liabilities

                             -  

Total Non Current Liabilities

           19,000,000

Total Liabilities

           20,170,000

Shareholders’ Equity

Common Stack ( $1 par value)

              5,000,000

Additional Paid In Capital

              7,520,000

retained earnings

                             -  

Total Shareholders’ Equity

           12,520,000

Total Liabilities and Shareholders’ Equity

           32,690,000

Here are some other data:

  1. The total compensation of officers is $2,500,000; other wages and salaries is $5,000,000.
  2. Apex actually wrote off $27,000 of its accounts receivable as uncollectible.
  3. Charitable contributions, $500,000, were all cash contributions.
  4. Tax depreciation was $1,900,000.
  5. Apex wrote off $30,000 of goodwill as impaired.
  6. Apex’s dividends received deduction is $130,000
  7. Apex made $480,000 in estimated tax payments.
  8. Apex’s taxable interest income is $8,000.
  9. Apex’s other deductions are 166,600.

Solutions

Expert Solution

From 2017 onwards corporate tax rate is considered as 21% flat rate

Steps to calculate corporate tax income:

Net income before taxes 1,25,90,000

Less : Compensation of Officers 25,00,000

Wages and Salaries 50,00,000

Bad debt written off 27,000

Charitable contributions 5,00,000

Depreciation 19,00,000

Goodwill written off 30,000

Dividend Recieved deduction 1,30,000

Other deductions 1,66,600

Corporate taxable amount 2,336,400

Corporate Tax rate       21%

Corporate tax liability 490,644


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