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TYLER CORPORATION MAJOR SHAREHOLDER AND OFFICER RECEIVED COMPENSATION OF 500,000 THIS YEAR FOR TAX PURPOSES THE...

TYLER CORPORATION MAJOR SHAREHOLDER AND OFFICER RECEIVED COMPENSATION OF 500,000 THIS YEAR

FOR TAX PURPOSES THE COMPENSATION IS SALARY EXPENSE OF 350,000 AND DIVIDENDS OF 150,000

FOR BOOK DETERMINATION THE 500,000 IS SALARY EXPENSE.

TYLER HAS BOOK INCOME BEFORE TAXES OF 2,000,000. TYLER TAXABLE INCOME ON SCHEDULE M1 FORM 1120 FOR THE YEAR

1650.000

2150.000

2350.000

2500.000

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Answer #1

For tax purposes only amount of $350,000 will be deducted as salary expenses and $150,000 will be disallowed, Whereas book income before taxes of $2,000,000 must have been calculated by deducting $500,000 as salary expense. Therefore for calculating Tyler's taxable income we need to add back disallowed salary expense (i.e. dividends for tax purposes) of $150,000 to book income before taxes of $2,000,000.

Tyler Taxable income on Schedule M1 Form 1120 = Book Income before taxes+Dividends

= $2,000,000+$150,000 = $2,150,000

Thus the Tyler taxable income on Schedule M1 Form 1120 for the year is $2,150,000. Hence the correct option is B) $2,150,000.

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