Fallow Corporation is subject to tax only in State X$.$ Fallow generated the following income and

deductions. State income taxes are not deductible for State X income tax purposes.

Sales $$4,000,000$

Cost of sales $2,800,000$

State X income tax expense $200,000$

Depreciation allowed for Federal tax purposes $400,000$

Depreciation allowed for state tax purposes $250,000$

Interest income on Federal obligations $40,000$

Interest income on State X obligations $30,000$

Expenses related to carrying State X obligations $2,000$

a$.$ The starting point in computing the State X income tax base is Federal taxable income.

Derive this amount.

b$.$ Determine Fallow$$s State X taxable income assuming that interest on State X obligations

is exempt from State X income tax.

c$.$ Determine Fallow$$s State X taxable income assuming that interest on State X obligations

is subject to State X income.