Question

Prepare the TAX INCOME for Smiles, LLC based off the below Book Income Statement. You will have to make some adjustments due to Book/Tax differences.

The income statement (cash basis) per books for the first year of Smiles, LLC operations is as follows:

Sales Revenue	$291,000
COGS, Payroll and G&A Exp	(130,400)
Depreciation Exp Equip #1	(7,000)	($21,000 ÷ 3 yrs)
Depreciation Exp Equip #2	(3,600)	($36,000 ÷ 5 yrs x ½ year)
Net Income per Books	$ 150,000

The Accounts Receivable of $15,000 was paid off during the year.

Answer 1

Solution : Preparation of Taxable Income for Smiles, LLC:-

Net Income as per Books ( Cash Basis)   = $ 150,000

Less: Accounts Receivable paid off during the year * = $ (15,000)

included in current year revenue on cash basis

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Taxable Income = $ 135,000

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* Assuming that the accounts receivable has been taxed in last year tax return