ACCT 540

Fall 2023

ASSIGNMENT 1: BOOK-TAX DIFFERENCES

There is a problem in the 2023 version of the text on page 16-39. It is problem 64 and it involves an entity called Timpanogos. If you have an earlier version of the text it will be a different problem number but will still be at the tail end of chapter 16 problems.

IF YOU ACCESS THE 2022 VERSION, IT MAY BE ON THE SAME PAGE..IF NOT, LOOK FOR THE TIPANOGOS FACT PATTERN.

The facts will allow you to reconcile book-to-tax income in the same manner as Exhibit 16-8 in the textbook.

Use the format from Exhibit 16-8, where you have four columns to reconcile book to tax, with adjustments for debits and credits.

THERE IS NO NEED TO DO THE SCHEDULE M-1. JUST DO THE RECONCILIATION IN THE FORM SHOWN IN THE EXHIBIT

Question : Timpanogos Inc. is an accrual-method calendar-year corporation. For 2023, it reported financial statement income after taxes of $1,342,000. Timpanogos provided the following information relating to its activities for the year :

Life insurance proceeds as a result of CEOs death $200,000

Revenue from sales (for both book and tax purposes) 2,000,000

Premiums paid on the key-person life insurance policies; the 21,000

policies have no cash surrender value

Charitable contributions 180,000

Cost of goods sold for book and tax purposes 300,000

Interest income on tax-exempt bonds 40,000

Interest paid on loan obtained to purchase tax-exempt bonds 45,000

Rental income payments received and earned in 2023 15,000

Rental income payments received in 2022 but earned in 2023 10,000

Rental income payments received in 2023 but not earned by year-end 30,000

Tax depreciation 55,000

Book Depreciation 25,000

Net capital loss 42,000

Federal income tax expense for books in 2022 310,000

Required: a) Reconcile book income to taxable income for Timpanogos Inc. Be sure to

start with book income and identify all of the adjustments necessary to

arrive at taxable income.

b) Identify each book-tax difference as either permanent (P) or temporary (T).

c) Complete Schedule M-1 for Timpanogos.

d) Compute Timpanogos Inc.s tax liability.