Western Corporation, a calendar year, accrual basis corporation, reported $500,000 of net income after tax on its

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Western Corporation, a calendar year, accrual basis corporation, reported $500,000 of net income after tax on its 2018 financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the following information:

  • Western’s book income included $15,000 of dividends, received from a domestic corporation in which Western owns less than 1 percent of the outstanding stock.
  • Western’s depreciation expense per books was $55,000, and its MACRS depreciation was $70,000. 
  • Western earned $5,000 of interest from municipal bonds and $6,000 of interest from corporate bonds.
  • Western’s capital losses exceeded its capital gains by $2,000.
  • Western’s federal income tax expense per books was $103,000.

a. Compute Western’s federal taxable income and regular tax liability.

b. Prepare a Schedule M-1, page 5, Form 1120, reconciling Western’s book and taxable income.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Principles Of Taxation For Business And Investment Planning 2019 Edition

ISBN: 9781260161472

22nd Edition

Authors: Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan

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