M Corporation reported 2018 book net income of $185,000. The following items were included in book income for 2018:
State A income tax expense $ 15,000
State B income tax expense $ 5,000
Federal income tax expense $49,000
Book depreciation expense $ 18,000
Municipal bond interest income $ 10,000
US government obligation interest income $ 12,000
Dividends received from 5% owned US co. $ 8,000
Separately, M Corporation computed federal tax depreciation of $26,000.
A) Based on the above, compute M’s 2018 federal taxable income.
B) M Corporation computed state tax depreciation of $23,000. M is only taxable in States A and B. All investment income, including interest and dividend income is earned in State A. State A allows exclusion for interest earned on federal obligations, taxes all municipal interest and disallows all deductions for state income taxes .State A has not adopted federal depreciation methods and does not recognize the dividends received deduction. State A apportions taxable income based on the average of three factors- payroll, property, and sales. M Corporation has 60% of its payroll, 40% of its property, and 20 % of its sales in State A. Based on the above information; compute M’s state 2018 taxable income in State A.
a. Computation of M's Federal Taxable Income
Particulars Amount ($)
Net Income for 2018 = 185,000
(+) State A Income Tax Expense = 15,000
(+) State B Income Tax Expense = 5000
(+) Federal Income Tax Expense = 49,000
(+) Book Depreciation = 18,000
(-) Federal Tax Depreciation = (26,000)
Federal Taxable Income = 246,000
b. M's State Taxable Income In State A
Particulars Amount($)
Net Income for 2018 = 185,000
(+) State A Income Tax Expense = 15,000
(+) Book Depreciation = 18,000
(-) State Tax Depreciation = (23,000)
(+) Municipal Bond Interest Income = 10,000
(+) US Govt Obligation Interest Income = 12,000
(+) Dividend Received from 5% owned US Co. = 8,000
M's State Taxable Income In State A = 225,000
M Corporation reported 2018 book net income of $185,000. The following items were included in book...
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