Question

Fallow Corporation is subject to tax only in State X. Fallow generated the following income and deductions. State income taxes are not deductible for X income tax purposes.
Sales ........................$4,000,000
Cost of sales ...................... 2,800,000
State X income tax expense ............... 200,000
Depreciation allowed for Federal tax purposes ......... 400,000
Depreciation allowed for state tax purposes .......... 250,000
Interest income on Federal obligations ............ 40,000
Interest income on X obligations .............. 30,000
Expenses related to carrying X obligations .......... 2,000
a. The starting point in computing the X income tax base is Federal taxable income. Derive this amount.
b. Determine Fallow’s X taxable income assuming that interest on X obligations is exempt from X income tax.
c. Determine Fallow’s X taxable income assuming that interest on X obligations is subject to X income tax.


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  • CreatedSeptember 09, 2015
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