AC 750 Chapter 16

AC 750 Chapter 16 - Chapter 16 Corporate Operations...

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Corporate Operations Chapter 16
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Corporate Taxable Income Formula AC 750 - Chapter 16 2
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Book-Tax Adjustments Financial income typically is the starting point for computing taxable income Reconcile to taxable income Book-tax adjustments for differences between financial accounting rules Financial Statement Net Income - FAVORABLE adjustments + UNFAVORABLE adjustments Taxable Income Unfavorable Adjustments: TI > Book L Increase in income Disallowed deduction Favorable Adjustments: TI < Book J Decrease in income Increase in deduction Permanent differences Temporary differences AC 750 - Chapter 16 3
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Book-Tax Adjustments - Example X Corp. has $120,000 of financial statement income. Included in this number is $5,000 of interest income from State Bonds, $2,000 of fines and penalties and $18,000 of depreciation. MACRS depreciation is $25,000. Financial Statement Income $120,000 - Income exempt from tax ( $5,000) - Depreciation ( $7,000) + Fines and penalties $2,000 Taxable Income $110,000 Permanent or Temporary? AC 750 - Chapter 16 4
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Book-Tax Adjustments Workpapers Trial Balance format using debits and credits Tax $25,000 - Book - 18,000 = Adjustment $7,000 Debit = Favorable (Credit) = (Unfavorable) Description Book Income Book to Tax Adjustments Dr. (Cr.) Taxable Income Revenues $ (1,000,000) $(1,000,000) CGS 600,000 600,000 Gross Profit $ (400,000) $(400,000) Expenses Depreciation XP $18,000 $7,000 $25,000 AC 750 - Chapter 16 5
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AC 750 - Chapter 16 6 Schedule M Book-Tax Differences What are they? Items of income and expense treated differently for 
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AC 750 Chapter 16 - Chapter 16 Corporate Operations...

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