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Unformatted text preview: MULTIPLE CHOICE 1. Norman Corporation owns and operates two manufacturing facilities, one in State X and the other in State Y. Due to a temporary decline in the corporation’s sales, Norman has rented 20% of its Y facility to an unaffiliated corporation. Norman generated $600,000 net rental income and $2,400,000 income from manufacturing. For X and Y purposes, rental income is classified as allocable nonbusiness income. By applying the statutes of each state, Norman determined that its apportionment factors are .60 for X and .40 for Y. Norman’s income attributed to X is: a. $3,000,000. b. $2,400,000. c. $2,040,000. d. $1,440,000. e. $0. ANS: D Taxable Income $3,000,000 Less: Allocable Income (600,000 ) Apportionable Income $2,400,000 Times: Apportionment Factor × 60% Income Apportioned to State X $1,440,000 Plus: Income Allocated to State X-0- Income Subject to Tax in State X $1,440,000 PTS: 1 REF: Figure 24-1 2. Wailes Corporation is subject to a corporate income tax only in State X. The starting point in computing X taxable income is Federal taxable income. Wailes’ Federal taxable income is $650,000, which includes a $60,000 deduction for state income taxes. During the year, Wailes received $50,000 interest on Federal obligations and $250,000 of interest on State Z obligations. X does not allow a deduction for state income tax payments, but it does exclude interest earned on its own obligations. Wailes’ taxable income for X purposes is: a. $960,000. b. $910,000. c. $850,000. d. $800,000. e. $600,000. ANS: B Federal taxable income $650,000 State income tax expense 60,000 Interest on State Z obligations 250,000 Interest on Federal obligations (50,000 ) State X Taxable Income $910,000 PTS: 1 REF: Exhibit 24-1 3. Perez Corporation is subject to tax only in State A. Perez generated the following income and deductions. Federal taxable income $500,000 State A income tax expense 30,000 Depreciation allowed for Federal tax purposes 300,000 Depreciation allowed for state tax purposes 400,000 Federal taxable income is the starting point in computing A taxable income. State income taxes are not deductible for A tax purposes. Perez’s A taxable income is: a. $530,000. b. $500,000. c. $430,000. d. $400,000. ANS: C Federal taxable income $500,000 State income tax expense 30,000 Depreciation modification ($300,000 – $400,000) (100,000 ) A taxable income $430,000 PTS: 1 REF: Exhibit 24-1 4. In determining a corporation’s taxable income for state income tax purposes, which of the following does not constitute a subtraction from Federal income? a. Interest on U.S. obligations. b. Expenses that are directly or indirectly related to state and municipal interest that is taxable for state purposes....
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This note was uploaded on 04/07/2011 for the course ACCT 640 taught by Professor N/a during the Spring '11 term at Davenport.
- Spring '11