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Timpanogos Inc. is an accrual-method calendar-year corporation. For the current year 2017, it reported financial statement...

Timpanogos Inc. is an accrual-method calendar-year corporation. For the current year 2017, it reported financial statement income after taxes of $1,552,000. Timpanogos provided the following information relating to its current year 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

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 current year 15,000

Rental income payments received in last year but earned in current year 10,000

Rental income payments received in current year but not earned by year-end 30,000

MACRS depreciation 55,000

Book depreciation 25,000

Net capital loss 42,000

Federal income tax expense for books in current year 400,000

Required:

1. Parts A and B are done in a Word table – one page single sided.

2. Parts C and D are done on Form M-1.Fill in information form www.irs.gov

A. 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.

B. Identify each book–tax difference as either permanent or temporary.

C. Complete Schedule M-1 for Timpanogos.

D. Compute Timpanogos Inc.’s tax liability.

Solutions

Expert Solution

A & B Reconsilation and Taxable Income

Particulars Book Income Adjustment Adjustment Taxable Income

Revenue From Sales 20,00,000

Cost of Goods Solds (300000) (60000) 50000 (310000)

Gross Profit 17,00,000 1690000

Income From Other Source

Proceeds of CEO (Life insurence) 200,000 (200000)

int. Income from exempte bond 40,000 (40000)

Rent Income 25,000 (10000) 30000 45000

Gross income 19,62,000 1690000

Expenses :

Interest paid to purchase bond (45,000) 45000

Net Loss (42000) 42000

Depriciation (25000) (30000) (55000)

Life Insurence Premiume (21000) 21000

Income Tax (500000) 500000

Total Expenses (636000) (55000)

Total income 1329000 1680000

Charitable Contributaion (180000) 12000 (168000)

Booked/Taxable Income 1152000 (340000) (700000) (1512000)

D. Tax Liability : 1512000 * 34% = 514080

ekkarill92 answered 1 year ago

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