C11-Chp-02-1B-Reconcile-Book-Tax-Income-2011

C11-Chp-02-1B-Reconcile-Book-Tax-Income-2011 - Chapter 2B....

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1 Chapter 2B. Corp. Taxation Reconciliation of Book and Taxable Income Howard Godfrey, Ph.D., CPA Professor of Accounting Copyright © 2011 Edited December 28, 2010
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2 Reconcile tax and book income [Page 25+]
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3 Corporation governed largely by Section 162 when determining deductibility of payments to shareholders. Shareholders governed largely by Sections 162 and 212 when making corporate related expenditures, but are limited by Sections 262 and 263(a)(1).
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4 162(a) In General. There shall be allowed as a deduction all the ordinary and necessary expenses … in carrying on any trade or business, including- (1) a reasonable allowance for salaries . . (2) traveling expenses … (3) rentals …
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5 What is the presumption in the Code regarding the relationship of corporate activities and Section 162(a)? Does Section 212 apply to corporations?
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6 Corporation's Taxable Income. Business Expenses. Deductions are allowed for ordinary and necessary business expenses. No deduction is allowed for interest on amounts borrowed to purchase tax- exempt securities, illegal bribes or kickbacks, fines or penalties imposed by a government, or insurance premiums incurred to insure the lives of officers and employees when the corporation is the beneficiary.
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7 Return Income per books-2011 $400,000 $400,000 Book Income includes: Municipal bond Interest 8,000 20,000 Prem. - officers' life ins. (corp. is beneficiary) 3,800 Capital losses 1,000 Fines 200 What is taxable income? Char. Corp.-organized 1-1-2011
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8 Return Income per books-2011 $400,000 $400,000 Book Income includes: Municipal bond Interest 8,000 (8,000) 20,000 10,000 Prem. - officers' life ins. (corp. is beneficiary) 3,800 3,800 Capital losses 1,000 1,000 Fines 200 200 What is taxable income? $407,000 Char. Corp.-organized 1-1-2011
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9 UNCC Corporation - 1 of 3 Compute Tax. Income Debit Credits Sales $700,000 Cost of sales $400,000 Mun. bond interest 2,000 Compensation 100,000 Meals, entertain-Gross 20,000 Other Expense 140,000 Subtotal 660,000 702,000 Net Income before tax
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10 UNCC Corp - 2 of 3 Debit Credits Sales $700,000 Cost of sales $400,000 Mun. bond interest 2,000 Compensation 100,000 Meals, entertain. (Gross) 20,000 Other Expense 140,000 Subtotal 660,000 702,000 Net Income before tax 42,000 Add: one half of entertain. Less: Mun. bond interest Taxable income Income Tax Compute E & P (Similar to Retained Earnings)
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11 UNCC Corp - 3 of 3 Debit Credits Sales $700,000 Cost of sales $400,000 Mun. bond interest 2,000 Compensation 100,000 Meals, entertain. (Gross) 20,000 Other Expense 140,000 Subtotal 660,000 702,000 Net Income before tax 42,000 Add: One half of entertain. 10,000 Less: Mun. bond interest (2,000) Taxable income 50,000 Income Tax 7,500 Compute E & P (Similar to Retained Earnings)
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Blue Corporation Blue Corp. reported GAAP net income before income tax of $400,000 in its first year of operation. Financial Statements include bad
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C11-Chp-02-1B-Reconcile-Book-Tax-Income-2011 - Chapter 2B....

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