Checking customers\' inventories for reorder utpendent vendor Conducting an adve

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Checking customers' inventories for reorder utpendent vendor Conducting an advertising campaign in the state k. Delivering goods to customers utilizing the seller's own trucks I. Qualifying to conduct business within the state 4-21 Modifications to Federal Taxable Income. L Corporation is subject to tax only in State A. State A law provides for the use of Federal taxable income before net oper- ating loss and special deductions (line 28, page 1, Form 1120) as the starting point in comp obligations and disallows any deduction for state income taxes. In addition, it taxes income on municipal bonds of out-of-state issuers. Selected information for the cur- rent year is as follows: uting state income. State A allows a deduction for interest received on Federal Federal taxable income (line 28, page 1).... . . . . Interest on U.S. Treasury bills. State income taxes. Interest on State A bonds Interest on State B bonds. . .. .. .$500,000 25,000 40,000 10,000 8,000 14-22 Modifications to Federal Taxable Income. M Corporation is subject to tax only in State B. State B law provides for the use of Federal taxable income before net oper- ating loss and special deductions (line 28, page 1) as the starting point in computing state income. State B allows a deduction for interest received on Federal obligations and disallows any deduction for state income taxes. In addition, it taxes income on inal honds Federal depreciation differs from state depreciation due to the Jaral denreciation methods. Selected

Explanation / Answer

14-21

Amount Amount Federal taxable income        5,00,000 Add: Taxable income Interest on state A bonds        10,000 Interest on state B bonds           8,000            18,000 Add: disallowed expenses State income taxes            40,000 Less: Non taxabel income Interest on US treasury bills          -25,000 State taxable income        5,33,000

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