Question

For the current tax year, Fannin Corporation, an Accrual Basis calendar year corporation, had the following information: Net Income Per Books (after-tax) $189,650 Premium on life insurance policy on its key employees* 12,000 Excess capital losses 8,000 Excess tax depreciation 7,000 (MACRS depreciation in excess of Financial Accounting (Book) Depreciation) Life insurance proceed on life of its key employees 150,000 Rental income received in current tax year 90,000 ($40,000 is prepaid (Unearned Revenue) and relates to next tax year) Tax-Exempt interest income on municipal bonds 12,000 Expenses related to tax-exempt interest income 6,500 Prepaid rent (Unearned Revenue) received and properly Taxed in prior tax year but not earned for financial accounting 20,000 Purposes until current tax year Federal income tax liability for current tax year 17,850 *-Fannie Corporation is the beneficiary of this Life Insurance Policy Required: Using the Schedule M-1 format, determine the Taxable income for Fannie Corporation for the current tax year (Please show the computations)

Answer 1

Fannie corporation's net income per books is reconciled to taxable income as follows:

Net Income per books (after tax) $189,650

Plus:

Items that decreased net income per books but did not

affect taxable income:-

+Fedral income tax per book $ 17,850

+Excess of capital loss over capital gain $ 8,000

+Expenses related to tax exempt intrest income $ 6,500

+Premium on life insurance policy on its key employees $ 12,000

+unearned rental income relates to next tax year $ 40,000

+Prepaid rent received taxed in prior years but not earned in books $ 20,000

Subtotal

Minus:

Items that increased net income per books but did not

affect taxable income:-

-Tax exempt intrest income    $(12,000)

-excess of macrs over book depreciation    $ (7,000)

-Life insurance proceeds on life of its key employees    $(150,000)

Taxable Income $ 1,25,000