M Corporation reported 2019 book net income of $185,000. The following items were included in book income for 2018:

State A income tax expense $ 15,000

State B income tax expense $ 5,000

Federal income tax expense $49,000

Book depreciation expense $ 18,000

Municipal bond interest income $ 10,000

US government obligation interest income $ 12,000

Dividends received from 5% owned US co. $ 8,000

Separately, M Corporation computed federal tax depreciation of $26,000.

A) Based on the above, compute M’s 2019 federal taxable income.

B) M Corporation computed state tax depreciation of $23,000. M is only taxable in States A and B. All investment income, including interest and dividend income is earned in State A. State A allows exclusion for interest earned on federal obligations, taxes all municipal interest and disallows all deductions for state income taxes .State A has not adopted federal depreciation methods and does not recognize the dividends received deduction. State A apportions taxable income based on the average of three factors- payroll, property, and sales. M Corporation has 60% of its payroll, 40% of its property, and 20 % of its sales in State A. Based on the above information; compute M’s state 2018 taxable income in State A.

C) M Corporation is looking to expand online sales activities into various states. What advice would you give M Corporation before they begin this expansion?

Answer rating: 100% (QA)

A Based on the above compute Ms 2019 federal taxable income 2019 book net income 18500000 Add Federal income tax expense 4900000 Add Book depreciation expense 1800000 Less federal tax depreciation 260... View the full answer