review_ex_2_fall_2010 - • $12,000 NOL(from 2009 •...

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TAX 5015 (Fall 2010) – Chapter review exercise #2 Topic review: Corporations – Taxable income Due date: September 9, 2010 Name(s): Brady Corporation reported the following information for 2010: Bad debt expense 17,904 Increase in balance of allow for doubtful accounts 2,797 Charitable contributions 8,161 Cost of goods sold 322,283 Dividend revenue (from a 15% owned domestic corporation) 3,580 Dividends paid 22,380 Interest revenue - City of Foxboro bonds 7,497 Interest revenue - U.S. Treasury bonds 14,323 Key-man life insurance premiums 2,573 Key-man life insurance proceeds received 50,000 Long-term capital gain 42,970 MACRS cost recovery 32,809 Straight line depreciation expense (used for book purposes) 19,023 Meals and entertainment 24,618 Other expenses 77,213 Salary expense 336,763 Salary expense - shareholders/employees 26,924 Sales 912,061 Short-term capital loss 32,151 Warranty expense 34,683 Decrease in estimated product warranty liability 3,953 Brady also has the following carryforwards:
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Unformatted text preview: • $12,000 NOL (from 2009) • $5,000 charitable contribution (from 2008) • $4,000 short-term capital loss (from 2007) [a] Compute Brady's 2010 taxable income. [b] List any items that Brady can carry forward to 2011? [c] Compute Brady’s financial accounting net income, assuming that the income tax expense per books is equal to the income tax liability computed based on taxable income in part a (i.e., ignore deferred taxes). [d] Using Schedule M-1 from Form 1120 (the M-1 can be obtained from “tax form” link on my web page) reconcile book income, computed in part c, to the taxable income computed in part a. (Hint: Schedule M-1 reconciles book income to taxable income before consideration of the dividends received deduction and any NOL carry forward). [e] Determine whether each book-tax difference is (1) a permanent difference – that will never reverse, or (2) a temporary (timing) difference – that will reverse over time....
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