Part II (3 points). Using the information provided in the multiple-choice question, prepare a multi-step (book) financial accounting income statement. Please refer to the multiple-choice question pasted on page 2. To understand corporate tax returns, you must have a good understanding of financial income statements. So please prepare an income statement based on the facts provided. I provide a template, but you can use your own and you are welcome to submit in Excel. I plan to follow up with tax returns. Tip: once you have prepared your income statement, check it to make sure that the totals compute. You can use the template provided, or you can use your own. In either case, you are responsible for an aesthetic presentation.

Sales Revenue	140,000
Cost of Goods Sold	0	Assume zero
Gross Profit	140,000
Operating Expenses
Depreciation Expense	2,000	Assume $2,000
Operating Income:	138,000
Other revenue (loss)	(4,000)
Net capital Loss	5,000
Interest Revenue	139,000
Income Before Taxes	35,000
Income Tax Expense	5,000
Net Income	104,000

1. What is the accrued tax rate (accrued income tax expense per books / pre-tax income per books) in the multiple-choice example?

2,000 [17] For the current year, accrual-basis Corp. A's books and records reflected the following: Net income per books $104,000 Accrued federal income tax 35,000 Net capital loss 4,000 Tax-exempt interest 5,000 Book depreciation in excess of allowable tax depreciation Based on the above facts, what is the amount of A's taxable income? A. $69.000 B. $70,000 C. $140,000 D. $150,000 The correct answer is C. A. Federal income tax is added to, not subtracted from, book net income. Also, the net capital loss and excess book depreciation must be added back, and tax-exempt interest income must be subtracted. B. Federal income taxes are not subtracted; they are added back to book net income. C. Federal income tax, excess capital losses, and book depreciation in excess of tax depreciation are not deductible. These amounts must be added back to book income. Tax- exempt interest is not taxable and must be subtracted from book income. These adjustments are done on Schedule M-1 of the corporation tax return. Net income per books $104,000 Add back: Federal income tax 35,000 Net capital loss 4,000 Excess book depreciation 2,000 $145,000 Subtract: Tax-exempt interest (5.000) Taxable income $140,000 D. The tax-exempt interest is not added back; it is subtracted from book net income