Part 1. Please refer to the multiple-choice question on page 3 of this assignment.

1. Which item (i.e. line; e.g. net income per books) is a temporary difference? Explain. If there is more than one, choose the best answer.

2. Which item is a permanent difference?

3. What does accrued federal income tax mean? Specifically comment on the word accrued.

4. Is accrued federal income tax an item line that is found on page 1 of form 1120? If so which line? If not, explain why not.

Part II. Financial Accounting income statement

Please refer to the multiple-choice question pasted on page 2. To understand corporate tax returns, you must have a good understanding of financial income statements. So please prepare an income statement based on the facts provided. I provide a template, but you can use your own and you are welcome to submit in Excel. I plan to follow up with tax returns. Tip: once you have prepared your income statement, check it to make sure that the totals compute. You can use the template provided, or you can use your own. In either case, you are responsible for an aesthetic presentation.

Sales Revenue
Cost of Goods Sold	0	Assume zero
Gross Profit
Operating Expenses
Depreciation Expense	2,000	Assume $2,000
Operating Income:
Other revenue (loss)
Net capital Loss
Interest Revenue
Income Before Taxes
Income Tax Expense
Net Income

For the current year, accrual-basis Corp. A's books and records reflected the following: Net income per books $104,000 Accrued federal income tax 35,000 Net capital loss 4,000 Tax-exempt interest 5,000 Book depreciation in excess of allowable tax depreciation 2,000 Based on the above facts, what is the amount of A's taxable income?

A. 69000

B. 70000

C. 140000

D. 150000

The correct answer is C