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Microsoft has engaged your firm to prepare its book-to-tax reconciliation for 2022. Refer to the following: Compensation includes $1,800,000 of accrued bonuses at yearend. $1.25M
Microsoft has engaged your firm to prepare its book-to-tax reconciliation for 2022. Refer to the following:
- Compensation includes $1,800,000 of accrued bonuses at yearend. $1.25M were paid on February 16, 2023. The balance was paid on April 16, 2023.
- All stock option compensation expense on the book relates to non-qualified stock options for covered executives. Only the CFO exercised options during the year (50,000 options). Upon exercise, the stock was trading at $28/share. The options were issued in 2018 with a strike price of $21. The options vested in 2021. Microsoft expensed a total of $1,300,000 for these options over their vesting period.
- In the current year, Microsoft made $250,000 of payments to repair defective products under its warranties.
- In December 2022, Microsoft's board of directors approved a $250,000 cash contribution to the Lutheran Services and $750,000 of cash contributions to other qualified charities in the area of their headquarters. The payment to Lutheran Services was made in May 2023. All other payments were made in February 2023. Microsoft also has a $60,000 charitable contribution carryover from 2018.
- Microsoft will claim a tax credit of $325,000.
Complete the book-to-tax reconciliation and be sure to note whether the BTDs are temporary or permanent, favorable, or unfavorable. Specifically state how much of a book-tax adjustment should be made.
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