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In: Accounting

On Jan 1, 2017, NSP Corporation, a calendar year, accrual basis C corporation was organized and...

On Jan 1, 2017, NSP Corporation, a calendar year, accrual basis C corporation was organized and began business operations. NSP provides network security protection services for businesses. During 2017, it had financial income (per books) before tax of $1,000,000.

The following items were expensed in the arriving at NSP’s 2017 financial income (per books):

-$20,000 of organization costs to organize the corporation; the federal tax amortization amounted to $6,000.

-$20,000 increase to its allowance for doubtful accounts; actual bad debts written off amounted to $5,000.

-$100,000 straight ling financial depreciation; total federal depreciation amounted to $500,000.

-$7,000 life insurance premium paid on a key officer of the corporation.

-$5,000 political contribution maid to a candidate running for a seat in the United States of House of Representatives.

-$20,000 of meals and entertainment expenses.

1) Identify which of NSP’s 2017 items listed above are permanent book/tax differences and which are temporary book/tax differences.

2) What is NSP Corp’s 2017 federal taxable income and federal income tax liability? Please show your work and explain your calculations.

Solutions

Expert Solution

Permanent taxes are book-tax differnces in asset and liablity bases that arise and never reverse.

Business transactions may be reported in different periods in financial statements than being reported for income tax calculation. These diferrences are being referred to as Temporay diferrences. These diferrences are more so temporary as they originate in one period and also reverse in later period.

Part 1

  • $20,000 of organization costs to organize the corporation; the federal tax amortization amounted to $6,000: Temporary
  • $20,000 increase to its allowance for doubtful accounts; actual bad debts written off amounted to $5,000: Temporary
  • $100,000 straight ling financial depreciation; total federal depreciation amounted to $500,000: Temporary

  • $7,000 life insurance premium paid on a key officer of the corporation: Permanent

  • $5,000 political contribution maid to a candidate running for a seat in the United States of House of Representatives: Permanent

  • $20,000 of meals and entertainment expenses: Permanent

ekkarill92 answered 2 years ago
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