Question
Company ABC has engaged to you compute its income tax liability for 2022. Assume company ABC reported the following in its General Ledger: Pre-tax book
Company ABC has engaged to you compute its income tax liability for 2022.
Assume company ABC reported the following in its General Ledger:
Pre-tax book income $60,000,000
Federal tax expense $12,600,000
Net income $47,400,000
Determine the companys tax liability for the year.
1. Company ABC owns 25% of Company XYZ. Company XYZ earned $500k of book income for the year and paid a $35k dividend to Company A. Be sure to account for the BTD from the income as well as the BTD from the DRD.
2. Tax depreciation expense for the year was $2M. Book depreciation expense was $3.8M.
3. Company ABC has $3M of goodwill on its books from an acquisition 4 years ago. The goodwill is amortizable for tax purposes. No goodwill was impaired during the year.
4. Company ABC sold two capital assets during the year. The first sale generated a capital gain of $60k. The second sale generated a capital loss of $140k. Company ABC did not report any capital gains in the prior three years.
5. Company ABC sold a piece of equipment for $75k. The equipment had no tax basis and a $40k book basis. Assume the entire tax gain is ordinary, not capital.
6. Company ABC paid its CEO $2.5M of total compensation and its CFO $1.2M. No other executives earned salary in excess of $1M.
7. Company ABC recorded $210k of meals expense and $50k of entertainment.
Compute Company ABCs taxable income and federal tax expense for 2022. For each BTD, note whether it is favorable or unfavorable, temporary or permanent.
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