Question

1. TSK Corp. operates a document storage company. Scott, the president owns 40% of the stock. In 2018, TSK Corp. had Book Net Income of $800,000.The following items were included in Book Net Income:

Dividend  income                                                                    20,000

Interest income                                                                         10,000

Long term capital gain                                                                8,000

Federal tax expense                                                                 213,000

Further discussion with Scott revealed the following additional information:

1. The corporation is a calendar year end and uses the accrual method of accounting.
2. The dividends were from a domestic corporation and TSK owns 20 % of this stock.
3. Interest income is from US Treasury Bonds.
4. Book  expenses included a $5000 penalty for late payment of Federal taxes, and $12,000 premiums on officer life insurance
5. Book expenses included an estimated bad debt expense of $40,000. Actual bad debt write offs during the year were $19000.
6. Tax depreciation exceeds book depreciation by $14,000.
7. The corporation has a long term capital loss carryover of $10,000 from 2016,
8. On July 1, 2018 TSK Corporation paid a distribution of $120,000 to its shareholders. At December 31, 2017, the corporation had an accumulated deficit in earnings and profits of $ 42,000.
9. Assume a 21% tax rate.

Based on the above information compute TSK’s 2018 US taxable income and earnings and profits as of December 31, 2019.

Answer 1

Computation of taxable income of TSK corporation. Refer to the below images for more detailed solution with explanation.

computation of Solution : Taxable income of TSK corporation : particulars Amount Amount Net Corporation 9800000 tess :- income of Dividend Long term TSIC income Capital 20000 5 8000 #(28000) gain $772000 $ 213000 Add: Federal tax expense 9 985000 Additional information: Less: - Book expense for penalty Estimated bad debts expenses . Exceeded depreciation Dividend Accomulated Deficit $ 5000 $40000 $14000 # 120000 + 48000 (221000) $764000 > = $ 160440 Net taxable income → Given tax @ 211 [$764000 4201 long-term capital gain = $8000+ $ 10000 - 18000 Tax on Lice @ 207 = $18000*2010 Total Tax liability t o → = $3600 $ 164040

Notes points : 0 Long term capital gain is taxed at a flat rate of 20to. ② Dividend income is not taxable. Dividend received from domestic company is taxable, - only if the amount exceeds Rs. 10,00,000 Interest earned on oso Treasury securities is exempt from dax at State & Local level, but fully taxable at federal level. - -