Question

37. A consumer electronics company was formed to sell a portable handset system. The company purchased a warehouse and converted it into a manufacturing plant for $2,000,000 (including the purchase price of the warehouse). It completed installation of assembly equipment worth $1,500,000 on December 31. The plant began operation on January 1. The company had a gross income of $2,500,000 for the calendar year. Manufacturing costs and all operating expenses, excluding the capital expenditures, were $1,280,000. The depreciation expenses for capital expenditures amounted to $128,000. a. Compute the taxable income of this company. b. How much will the company pay in federal income taxes for the year?

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Answer 1

ANSWER

Calculation of taxable income A) Particulars Gross profit Less: Operating expense Net income Less: Depreciation Taxable income Amount $2,500,000 $1,280,000 $1,220,000 $128,000 $1,092,000 Calculation of federal income tax B) Particulars Taxable income Add: Tax rate Amount $1,092,000 34% S371,280 $113,900 $257,380 Add: Base tax amaount Net income after tax Total tax is $485,180 ($371,280+S113900) Note Corporate Tax Rate Schedule (2005 through 2016) But not Of amount Over Tax is over over $50,000 15% 75,000 $7,500+25% 100,000 13,750 34% 335,000 22,250 39% 113,900 335,000 10,000,000 34% 3,400,000 10,000,000 15,000,000 35% 5,150,000 15,000,000 18,333,333 38% SO0 50,000 50,000 75,000 75,000 100,000 100,000 335,000 10,000,000 15,000,000 35% 18,333,333

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