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X is a calendar year, regular corporation with the following information reflected on its profit and loss statement, with the statement audited by your firm.

X is a calendar year, regular corporation with the following information reflected on its profit and loss statement, with the statement audited by your firm. Your manager has given you the statement and asked you to prepare a workpaper computing taxable income and to show all book/tax differences used to compute that number.

P&L

Revenue

$1,000,000
Cost of Revenue 725,000
Gross Margin 275,000
Operating Expenses
Wages 120,000
Payroll taxes 90,000
Bad debt expense 2,000
Officer life insurance 600

Repairs & maintenance

5,000
Depreciation 10,000
Office expense 5,010
Uniforms 600
Rent 12,000
Travel 1,000
Equipment 750
Utilities 9,000
Meals 600
Total Operating Expenses 256,560
Other Income (Expense)
Dividends from 60% owned company 7,000
Loss upon asset disposal-book (500)
Municipal interest income 350
Total Other Income (Expense) 6,850
Net Book Income $25,290

Special notes:

  • Net operating loss carryforward of $10,000
  • Tax depreciation is $15,000
  • Bad debts written off of $1200
  • Tax basis of asset disposed of was $500 greater than book asset basis.

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