Question

Determine taxable income in each of the following instances. Assume that the corporation is a C corporation and that book income is before any income tax expense.

Book income of $61,000 including capital gains of $6,000, a charitable contribution of $1,600, and meals and entertainment expenses of $8,500.

Book income of $103,000 including capital losses of $7,000, a charitable contribution of $17,500, and meals and entertainment expenses of $2,000.

Book income of $81,500 including municipal bond interest of $1,500, a charitable contribution of $5,100, and dividends of $3,200 from a 10% owned domestic corporation. The corporation also has an $7,000 charitable contribution carryover.

Book income of $140,000 including municipal bond interest of $1,700, a charitable contribution of $4,000, and dividends of $6,500 from a 70% owned domestic corporation. The corporation has a capital loss carryover of $5,000 and a capital gain of $2,000 in the current year.

Please proved assistance with "C"

a.	Taxable income	$65,250 selected answer correct
b.	Taxable income	$115,650 selected answer correct
c.	Taxable income	$74,574 selected answer incorrect
d.	Taxable income	$131,100 selected answer correct

Answer 1

Solution:

Answer C :

To determine the charitable contribution adjustment, we must first determine taxable income before charitable contribution.

This amount is [$81,500 - $1,500 for interest - ($3,200*70%) for DRD + $5,100 charitable contribution]

= $80,000 - $2,240 + $5,100

= $81,860

Thus the corporation is allowed to take an $8,186 ($81,860*10%) charitable contribution.

The corporation paid $5,100 in the current year and this amount is included in book income.

Thus the corporation can take an additional $3,086 ($8,186 -$5,100) in charitable contributions.

The taxable income:

Taxable income = Book income - Non taxable interest income - Charitable contribution adjustment -DRD adjustment

= $81,500 - $1,500 - $3,086 - (70% of $3,200)

= $76,914 - $2,240

= $74,674.

The taxable income = $74,674.