For the year ended December 31,2007, The Granite Company had the following activ
ID: 2453043 • Letter: F
Question
For the year ended December 31,2007, The Granite Company had the following activity relative to its income tax calculations: (i) it made a charitable contribution of $26,000, of which only $10,000 was permitted as a taxable deduction, and (ii) it estimated warranty expense at $14,000, but actually spent only $6,000 for repairs and replacements of its products. In 2008, Granite's management calculated that all but $4,000 of the charitable contribution carryover could be deducted. In addition, warranty expense for GAAP purposes was $4,000, but the company spent $10,000 for repairs and replacements. In 2009, Granite was permitted to take the remainder of the charitable-contribution carryover; the company estimated warranty expense at $12,000 but spent $20,000 for repairs and replacements. It also had cost recovery for income tax purposes in an amount of $16,000 greater than book depreciation. The U.S. government has placed an embargo on doing business with the country of Grand Wachovia. In 2009, Granite realized that an expense of $10,000 for an import duty paid for products purchased from Grand Wachovia would not be an acceptable tax deduction. Granite's earnings before taxes were $100,000 in each of the years ended December 31,2007 through 2009. Prepare the following: a schedule for the calculation of taxable income for 2009.Explanation / Answer
Answer : Taxable Income schedule for 2009
Particulars Amount ($) Amount ($) Gross income in 2009 before tax 100000 Less Charitable contribution made in 2007 (26000-10000-4000) 12000 Warranty expenses actual incurred 20000 32000 Add Import duty (which is not allowed as deduction) 10000 Cost recovery 16000 26000 Taxable income 94000