LO.1 Flip Corporation is subject to tax only in State X. Flip generated the following income and deductions. State income taxes are not deductible for 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 300,000 Interest income on Federal obligations 50,000 Interest income on X obligations 30,000 Expenses related to carrying X obligations 10,000

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

Derive this amount.

b. Determine Flip’s X taxable income assuming that interest on X obligations is exempt from X income tax.

c. Determine Flip’s X taxable income assuming that interest on X obligations is subject to X income tax.