Client XYZ has the following income/expense items for tax year ending 2017. Book
ID: 2596206 • Letter: C
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
NET PROFIT
450000
Add:
Entertainment expenses
44000
Fines
150
club dues
500
book depreciation
75000
Amortisation
68000
vacations not deducted
52000
Prepaid expenses
30000
bad debt reserve
13000
Opening inventory
47000
Less
Tax depreciation
92000
tax amortization
41000
accrued vacation
46000
prepaid
42000
inventory
40000
taxable income - 518650
NET PROFIT
450000
Add:
Entertainment expenses
44000
Fines
150
club dues
500
book depreciation
75000
Amortisation
68000
vacations not deducted
52000
Prepaid expenses
30000
bad debt reserve
13000
Opening inventory
47000
Less
Tax depreciation
92000
tax amortization
41000
accrued vacation
46000
prepaid
42000
inventory
40000
taxable income - 518650
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