Micro, an accrual basis corporation, reported $505,100 net income before tax on its financial statements prepared in accordance with GAAP. Micro’s records reveal the following information:
• Micro earned $319,600 net income from domestic manufacturing activity and $179,200 from foreign manufacturing activity.
• Late in the year, Micro entered into a five-year licensing agreement with an unrelated firm. The agreement entitles the firm to use a Micro trade name in marketing its own product. In return, the firm will pay Micro an annual royalty of 1 percent of gross revenues from sales of the product. The firm paid a $40,000 advanced royalty to Micro on the day the agreement was finalized. For financial statement purposes, this prepayment was credited to an unearned revenue account.
• At its final meeting for the year, Micro’s board of directors authorized a $15,500 salary bonus for the corporation’s president to reward him for an outstanding performance. Micro paid the bonus on January 12. The president doesn’t own enough Micro stock to make him a related party for federal tax purposes.
• Micro was incorporated last year. On its first tax return, it reported a $21,400 net operating loss. Compute Micro’s taxable income.

  • CreatedNovember 03, 2015
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