Timpanogos Incorporated is an accrual-method, calendar-year corporation. For 2024, it reported financial statement income after taxes of $1,613,000. Timpanogos provided the following information relating to its activities for the year: Life insurance proceeds as a result of CEO's death $ 240,000 Revenue from sales (for both book and tax purposes) 2,400,000 Premiums paid on the key-person life insurance policies. The policies have no cash surrender value. 25,000 Charitable contributions 216,000 Cost of goods sold for book and tax purposes 360,000 Interest income on tax-exempt bonds 48,000 Interest paid on loan obtained to purchase tax-exempt bonds 54,000 Rental income payments received and earned in 2024 19,000 Rental income payments received in 2023 but earned in 2024 12,000 Rental income payments received in 2024 but not earned by year-end 36,000 Tax depreciation 65,000 Book Depreciation 29,000 Net capital loss 50,000 Federal income tax expense for books 372,000 Could you please reconcile book income to taxable income for Timpanogos Incorporated. Be sure to start with book income and identify all of the adjustments necessary to arrive at taxable income.
Certainly! To reconcile book income to taxable income for Timpanogos Incorporated, we need to adjust the book income for items that are treated differently for tax purposes. Here's a step-by-step reconciliation: ### Starting Point: - **Book Income After Taxes:** $1,613,000 ### Additions to Book Income (Items that increase taxable income): 1. **Federal Income Tax Expense:** $372,000 - This is deducted for book purposes but not for tax purposes. 2. **Interest Paid on Loan for Tax-Exempt Bonds:** $54,000 - This is not deductible for tax purposes. 3. **Book Depreciation vs. Tax Depreciation:** $36,000 - Tax depreciation ($65,000) exceeds book depreciation ($29,000), so we add back the difference: $65,000 - $29,000 = $36,000. 4. **Rental Income Received in 2023 but Earned in 2024:** $12,000 - This was not included in 2024 book income but is taxable in 2024. 5. **Rental Income Received in 2024 but Not Earned by Year-End:** $36,000 - This is included in book income but not taxable until earned. ### Subtractions from Book Income (Items that decrease taxable income): 1. **Life Insurance Proceeds:** $240,000 - These are not taxable. 2.
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