Question

Review of Ace’s financial reports and information revealed the following: Sales 2.4 million Opening inventory 650,000 Purchase 1.1million Closing inventory 585,000 Heat, light utilities 300,000 Employee payroll 245,000 Executive salary and pension 350,000 EPA fines 85,000 Life insurance premiums paid 47,000 Life insurance collected on death of vice-president 500,000 Depreciation expense: GAAP Double declining balance total for year 85,000 MACRS, including section 179 and special first year, 692,000 Income tax paid Federal Regular 62,000, AMT 16,000, New York State/City 27,000 Compute income reported for GAAP purposes and taxable income, if different. Categorize as favorable/unfavorable a differences. Are they timing or permanent differences?

Answer 1

Computation of Income

Note :

1. Life insurance collected on death of vice president is not taxable under US tax law

2. EPA fines is not allowable for deduction under US tax law

3. Depreciation for tax purpose is computed based on MACRS