for the two corporations is equal to the tax liability they would have incurred if they weretaxed as one corporation with their combined taxable income of $330,000.) pp. 2-21, 2-22, and Exhibit 2.159.Grouse, a large corporation, may use the prior year’s tax liability exception only forpurposes of its first estimated tax payment for 2013. Any shortfall from not using thecurrent year’s (2013) tax liability for the first installment must be paid in conjunctionwith the second installment payment. As such, Grouse’s installment payment dates andamounts are as follows:PaymentAmountApril 15, 2013$ 59,500*June 15, 2013212,500**September 15, 2013136,000December 15, 2013136,000Total$544,000*Based on preceding year’s tax, for first installment only: [$700,000 taxable income ×34% (see Exhibit 2.1)] = $238,000 ÷ 4 = $59,500.**Based on current year’s tax, for remaining installments: [$1.6 million taxable income ×34% (see Exhibit 2.1)] = $544,000 ÷ 4 = $136,000. Second installment must includeshortfall from first installment: [$136,000 + ($136,000 – $59,500)] = $212,500.Example 3460.Emerald’s net income per books is reconciled to taxable income as follows:Net income per books (after tax)$257,950Plus:Items that decreased net income per booksbut did not affect taxable income:+ Federal income tax per books41,750+ Excess of capital losses over capital gains6,000+ Interest on loan to purchase tax-exempt bonds1,500+ Premiums paid on life insurance policy on life
of Albatross’s president 7,800 Subtotal $315,000 Minus: Items that increased net income per books but did not affect taxable income: – Tax-exempt interest income (15,000) – Life insurance proceeds received as a result of the death of the corporate president (150,000) Taxable income $150,000 Example 35 61. Sparrow’s net income per books is reconciled to taxable income as follows: Net income per books (after tax) $174,100 Plus: Items that decreased net income per books but did not affect taxable income: + Federal income tax per books + Excess of capital loss over capital gains + Interest paid on loan incurred to purchase tax-exempt bonds + Nondeductible meals and entertainment 5,500 Subtotal $276,700 Minus: Items that increased net income per books but did not affect taxable income: – Tax-exempt interest income – Excess of MACRS over book depreciation (7,200) Taxable income $265,000 Example 35 62. Dove’s unappropriated retained earnings per books, as of December 31, 2013, is determined as follows: Balance at beginning of year $ 796,010 Plus: Net income (loss) per books 386,250 Subtotal $1,182,260 Minus: Cash dividend distributions (150,000) Balance at end of year $1,032,260 Example 36 63. Pelican, Inc., reports the meals and entertainment expenditures on line 11, Part III as follows: book expense of $10,000 in column (a), permanent difference of ($5,000) in column (c), and tax return deduction of $5,000 in column (d). This problem illustrates reporting procedures when book expenses are greater than tax return deductions. It also illustrates the reporting of permanent differences. Example 40
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- Spring '11
- Taxation in the United States