Squirrel, Inc., an accrual basis, calendar year C corporation reports the following results for 2022. Income Gross
Question:
Squirrel, Inc., an accrual basis, calendar year C corporation reports the following results for 2022.
Income
Gross profits on sales $1,260,000
Dividend income 40,000(10% owned domestic corp)
Interest on US Treasury bonds 20,000
Interest on Texas Education bonds 24,000
Life insurance policy payout 100,000(key employee died)
Gain on sale of investment land 16,000
Expenses
Bad debt expense 10,000
Depreciation (book) 331,619
Charitable contributions 16,000
Loss on sale of stock 2,400
Penalty for pollution 900
Federal income tax expense 230,807
Net income reported on fin statements $868,274
Other information:
a.Regular tax depreciation (MACRS). Assume Squirrel uses Straight-Line for the ADS calculation.
GDS / ADS
Acq Description Cost Recovery 2022 Depreciation
1/2022 Used Office Machinery $1,072,000 5 yr/ 6 yr 1,000,000
IRC Section 179 - 1,000,000
Depr. Basis 72,000 14,400
6/2021 Used Furniture 200,000 7 yr/ 10 yr 48,980
2/2022Used Heavy Trucks 336,093 5 yr/ 6 yr 64,530
2/2018 Light Trucks 50,000 5 yr/ 5 yr 9,600
TOTAL 1,137,510
b. Squirrel has an NOL carryforward from prior years of $80,000.
c. Squirrel has a contribution carryforward from prior years of $1,000.
d. 2022 writeoffs for bad debts equaled the accrual of bad debt expense.
e. During 2022, Squirrel made quarterly estimated payments of $25,000 per quarter toward the 2022 corporate federal income tax liability.
f. Squirrel's taxable income is calculated using the reconciliation approach as follows:
Book income 868,274
+ Nondeductible Federal Income Tax Expense 230,807
+ Nondeductible Penalty 900
- Nontaxable Municipal interest income (24,000)
- Life insurance proceeds (100,000)
- Tax depreciation in excess of book (805,891)
Sub 170,090
+ Charitable Limit ($18,609) -
- Charitable Carryfoward (1,000)
Sub 163,090
-DRD (20,000)
-NOL (80,000)
Taxable Income 69,090
REQUIRED: Determine earnings & profits for Squirrel for the year 2022.
Federal Taxation 2021 Corporations, Partnerships, Estates & Trusts
ISBN: 9780135919460
34th Edition
Authors: Timothy J. Rupert, Kenneth E. Anderson, David S. Hulse