GVen
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Location: United States
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Posts: 71
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| Posted: 24 Feb 2012 at 17:43 | IP Logged
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For the problem below, I took the Pretax income and adjusted out all of the tax difference items below, and applied it against the table (for $75K-$100K pay $13,750 + 34% x excess over $75K; for $100K-$335K pay $22,250 plus 39% x excess over $100K).
I then subtracted it against the $35K that was paid. However, the solution uses the given pretax income of $98K as the baseline for the tax calc. Why did they not back out the muni interest, the life insurance premiums, and adjust to actual bad debt reserve?
Determine the following taxable or deductible amounts for Ral Corp. for the year ended December 31, 1993: Tax underpaid or (overpaid)
Following is Ral Corp.'s condensed income statement, before federal income tax, for the year ended December 31, 1993:
Income before federal income tax 98,000
Additional information:
Interest arose from the following sources:
U.S. Treasury notes 3,000
Municipal bonds 2,200
Total interest $ 5,200
Operating expenses include the following:
• Bonus of $5,000 paid to Ral's sales manager on January 31, 1994. This bonus was based on a percentage of
Ral's 1993 sales and was computed on January 25, 1994, under a formula in effect in 1993.
• Estimate of $10,000 for bad debts. Actual bad debts for the year amounted to $8,000. No pre-1989 bad debt
reserve remained on Ral's books since January 1, 1989.
• Keyman life insurance premiums of $4,000. Ral is the beneficiary of the policies.
• State income taxes of $12,000.
During 1993, Ral made estimated federal income tax payments of $35,000. These payments were debited to
prepaid tax expense on Ral's books.
Ral does not exercise significant influence over Clove and accordingly did not use the equity method of
accounting for this investment. Ral declared and paid dividends of $11,000 during 1993.
Ral was not subject to the alternative minimum tax in 1993.
Explanation
Choice "Q" is correct. $(13,430). $21,570 (income tax) - $35,000 (estimated tax paid) = $(13,430).
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Topic: cpa-04380 Ral Corp
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