Hamad, an accrual basis, calendar year corporation, reported $500,000 net income before tax on its financial statements
Question:
Hamad, an accrual basis, calendar year corporation, reported $500,000 net income before tax on its financial statements prepared in accordance with GAAP. EFG’s records reveal the following information:
Hamad paid a $17,500 fine to the state of Delaware for a violation of state pollution control laws.
Hamad was sued by a consumers’ group for engaging in false advertising practices. Although EFG’s lawyers are convinced that the suit is frivolous, its independent auditors insisted on establishing a $50,000 allowance for contingent legal liability and reporting a $50,000 accrued expense on the income statement.
Hamad received a $165,000 advanced payment for 10,000 units of inventory on October 20. EFG reported the payment as revenue the following February when the units were shipped.
Compute EFG’s taxable income.
*Please show the steps.
Principles of Taxation for Business and Investment Planning 2016 Edition
ISBN: 9781259549250
19th edition
Authors: Sally Jones, Shelley Rhoades Catanach