Question

Mary operates a proprietorship that generated $200,000 in income under GAAP. Included in this amount are:

·   $20,000 of amortization expense;
·   $10,000 for bad debt expense;
·   $150,000 cost of goods sold; and
·   $16,000 meals and entertainment with clients.

Mary’s maximum CCA has been calculated at $25,000 for the year. How much is Mary’s business income for tax purposes?

a.203,000

b.220,000

c.228,000

d. 234,000

Answer 1

Answer :

Mary's business income for tax purposes is calculated by

= Income Under GAAP + Amortization Expense + Bad debt Expense + 50% of Meals and Entertainment with clients - CCA

= ( 2,00,000 ) + ( 20,000 ) + ( 10,000 ) + (16,000 )*50% - ( 25,000 )

= ( 2,30,000 ) + ( 8,000 ) - ( 25,000 )

= ( 2,38,000 ) - ( 25,000 )

= 2,03,000

i.e Option A  2,03,000  is correct answer

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