Question

A corporation has gross sales revenue of $289,000, cost of sales of $98,000, a Section 179 deduction of $20,000 (financial depreciation is $5,000), operating expenses of $122,000, and a Section 1231 gain of $21,000 on the sale of some machinery (the gain is only $14,000 for financial accounting). What is the corporation’s taxable income? What is the corporation’s pretax financial accounting income?

Answer 1

1.Calculation of Taxable Income

Corporate Taxable Income=Working: Sales + Gain on the sale of machinery(Sec 1231) - Cost of sales - Operating expenses

= [$289,000 + $21,000 - $98,000 - $20,000 - $122,000]

= $70,000/-

2.Calculation of corporation’s pretax financial accounting income

corporation’s pretax financial accounting income=corporation’s taxable income + (Section 179 deduction - financial depreciation) - (Section 1231 gain on the sale of machinery - the gain for financial accounting)

= $70,000 + [$20,000 - $5,000] - [$21,000 - $14,000]

= $78,000/-

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