Question
M Corporation reported 2016 book net income of $185,000. The following items were included in book income for 2016: State A income tax expense $
M Corporation reported 2016 book net income of $185,000. The following items were included in book income for 2016:
State A income tax expense $ 15,000
State B income tax expense $ 5,000
Federal income tax expense $125,000
Book depreciation expense $ 18,000
Other investment income $9,000
Municipal bond interest income $ 10,000
US government obligation interest income $ 12,000
Dividends received from 5% owned US co. $ 8,000
M Corporation computed federal tax depreciation of $16,000.
A. Based on the above, compute Ms 2016 federal taxable income.
B. M Corporation computed state tax depreciation of $20,000. M is only taxable in States A and B. All investment income, including interest income is earned in State A. State A allows exclusion for interest earned on federal obligations, taxes all municipal interest and disallows all deductions for state income taxes .State A has not adopted federal depreciation methods and does not recognize the dividends received deduction. State A apportions taxable income based on the average of three factors- payroll, property, and sales. M Corporation has 60% of its payroll, 40% of its property, and 50 % of its sales in State A. Based on the above information; compute Ms state 2016 taxable income in State A.
C. M Corporation is looking to expand into state N. What advice would you give M Corporation before they begin this expansion?
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