Question

Cramer Corporation, a calendar year, accrual basis corporation, reported $1.45 million of net income after tax on its 2018 financial statements prepared in accordance with GAAP.

The corporation’s books and records reveal the following information:

Cramer's federal income tax expense per books was $209,000.

Cramer's book income included $19,000 of dividends received from a domestic corporation in which Cramer owns a 25 percent stock interest, and $8,500 of dividends from a domestic corporation in which Cramer owns a 5 percent stock interest.

Cramer recognized $19,000 of capital losses this year and no capital gains.

Cramer recorded $12,600 of book expense for meals and $14,500 of book expense for entertainment costs.

Cramer's depreciation expense for book purposes totaled $409,000. MACRS depreciation was $475,000.

Compute Cramer's federal taxable income and regular tax liability.

Answer 1

Particulars	Amount
Net income	1,450,000
Add:
Book tax	209,000
Capital losses	19,000
Half of meals and entertainment	13,550
Book depreciation	409,000
Less:
Dividends received deduction	21,150
MACRS depreciation	475,000
Taxable income	1,604,400

Tax liability = 1,604,400 * 21% = 336,924