FinalExamPracticeProblems - Chapter 16 Problem 86...

Chapter 16 Problem 86
Timpanogos Inc. is an accrual-method calendar-year corporation. For 2015, it reported financial
statement income after taxes of $1,152,000. Timpanogos provided the following information
relating to its 2016 activities:
Life insurance proceeds as a result of CEO’s death 200,000
Revenue from sales (for book and tax purposes) 2,000,000
Premiums paid on the key-person life insurance policies. The
policies have no cash surrender value. 21,000
Charitable contributions 180,000
Overhead costs that were expensed for book purposes but are
included in ending inventory for tax purposes under § 263A. 50,000
Overhead costs that were expensed for book purposes in 2015 60,000
but were included in 2015 ending inventory for tax purposes
under §263A. All 2015 ending inventory was sold in 2016.
Cost of goods sold for book purposes 300,000
Interest income on private activity tax-exempt bonds issued in 2015 40,000
Interest paid on loan obtained to purchase tax-exempt bonds 45,000
Rental income payments received and earned in 2016 15,000
Rental income payments received in 2015 but earned in 2016 10,000
Rental income payments received in 2016 but not earned by year end 30,000
MACRS depreciation 55,000
Book Depreciation 25,000
Alternative minimum tax depreciation 50,000
Net capital loss 42,000
Federal income tax expense for books in 2016 500,000

Timpanogos did not qualify for the domestic production activities deduction.
Required:
a. Reconcile book income to taxable income for Timpanogos Inc. Be sure to start with
book income and identify all of the adjustments necessary to arrive at taxable income.
b. Identify each book-tax difference as either permanent or temporary.
c. Complete Schedule M-1 for Timpanogos.
d. Compute Timpanogos, Inc.’s regular tax liability for 2016.
e. Determine Timpanogos’s alternative minimum tax, if any.
0

*[T] reflects temporary book-tax differences and [P] reflects permanent book-tax differences
(see requirement b).
c. Timpanogos’s Schedule M-1 is as follows:
d. Timpanogos’s regular tax liability is $514,080 ($1,512,000 × 34%).