For the year ended December 31, 2007, The Granite Company had the following acti
ID: 2454160 • Letter: F
Question
For the year ended December 31, 2007, The Granite Company had the following activity relative to its income tax calculations: it made a charitable contribution of $26,000, of which only $10,000 was permitted as a taxable deduction, and 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 countiy 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: schedule for the calculation of taxable income for 2009.Explanation / Answer
Solution:
Caluculation of Taxble Income:
2007 Year Taxable Income
2008 Year Taxable Income
2009 Year Taxable Income
Particulars Amount Revenues and Gains: Grantie's Earnings 1,00,000 Less: Expencess and Loss: Charitable Contribution 16,000 Repairs and Placements 6,000 Taxable Deduction Income 78,000