Client XYZ has the following income/expense items for tax year ending 2017. Book

Question

Client XYZ has the following income/expense items for tax year ending 2017. Book Income for the year is $450,000. For each of the following common schedule M items identify the impact to taxable income and indicate whether it is a favorable or unfavorable item. . Permanent Differences o Meals & Entertainment Expense: S44,000 o Fines and Penalties: S150 o Club Dues: S500 Temporary Differences -Book Depreciation: S75,000 - Tax Depreciation: $92,000 .Book Amortization: $68,000 - Tax Amortization: $41,000 o Accrued Vacation/PTO Amount of Vacation accrued at 12/31/17: $52,000 -Amount of Vacation used by 3/15/18: $46,000 o Prepaid Expenses "Prepaids at 12/31/16: $30,000 "Prepaids at 12/31/17: $42,000 .Non-qualifying prepaids after receiving detail from XYZ: $5,000 o Bad Debt Reserve Balance at 12/31/16: $65,000 Balance at 12/31/17: $52,000 Balance at 12/31/16: $40,000 -Balance at 12/31/17: $47,000 What is Client XYZ's taxable income for year ending 2017?

Explanation / Answer

Favourable or unfavorable items .

Temporary items

1. Depreciation = unfavorable

2. Amortization = favorable

3. Accrued vacation/PTO = favorable

4. Prepaid expenses = unfavorable

5. Bad debt reserves = favorable

6. Inventory reserves = unfavorable

Clients XYZ's taxable income for the year ending 2017 is 173350 as per book income calculated with actual expenses occurred.

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