I answer net operating income is 20000 60000 and

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(i)ANSWER: Net operating income is $20,000,($60,000) and ($120,000), respectively. Pre-DRDtaxable income is $220,000, $140,000 and$80,000, respectively.(a)STEP 1: Use 50% ratio since < 20%owned, thus potential dividend to deduct is$100,000.(b)STEP 2: Use 50% ratio, thus multiplied bypre-DRD taxable income is $110,000,$70,000, $40,000.(c)STEP 3: For DRD, use lesser of Step 1 or2, unless Step 1 generates NOL. So$100,000, $70,000, $100,000(ii)Taxable income is $120,000, $70,000 and($20,000)d)Adjust for book to tax differences (cash vs. accrual method)(1)When is a reconciliation required?(a)REQUIREMENTS:(i)Total gross income$250,000(ii)Total assets$250,000(2)Unfavorable vs. favorable differences(a)Unfavorable REQUIRES an addition back to bookincome(b)Favorable REQUIRES a subtraction to book income
(3)Temporary vs. permanent differences(a)What are temporary differences?(b)What are permanent differences?
(4)Where are book to tax differences reported?
© 2018 Machiavelli Chao |Unauthorized use, dissemination or duplication of this material is strictly prohibited27
© 2018 Machiavelli Chao |Unauthorized use, dissemination or duplication of this material is strictly prohibited28(b)(SCH M-1)(c)FORMULA:(i)Net income per books(ii)ADD: Capital losses exceeding capital gains(which are NOT deductible)(a)REMEMBER the limitation on deductibilityof capital losses for corporations(iii)ADD: Deferred revenue (accrual basis ofaccounting)(a)EXAMPLES:(i)Installment sales(ii)Unearned revenue(iv)ADD: Non-deductible expenses(a)Federal income tax expense (NOTdeductible for taxes)(b)50% of meals and entertainmentexpenses(c)Charitable contributions subject tolimitations(v)LESS: Deferred expenses (accrual basis ofaccounting)(a)EXAMPLE:(i)Prepaid expenses(vi)EQUALS: Net income for taxese)Compute taxable incomef)Compute tax liability(1)Ordinary income(a)

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Term
Spring
Professor
armstr
Tags
Hamlet, Limited partnership, Capital gains tax in the United States

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