Question

TGW, a calendar year corporation, reported $3,920,000 net income before tax on its financial statements prepared in accordance with GAAP. The corporation's records reveal the following information: • TGW's depreciation expense per books was $449,000, and its MACRS depreciation deduction was $378,400. • TGW capitalized $679,000 indirect expenses to manufactured inventory for book purposes and $804,000 indirect expenses to manufactured inventory for tax purposes. • TGW's cost of manufactured goods sold was $2,558,000 for book purposes and $2,640,000 for tax purposes. Four years ago, TGW capitalized $2,256,000 goodwill when it purchased a competitor's business. This year, TGW's auditors required the corporation to write the goodwill down to $1,505,000 and record a $751,000 goodwill impairment expense. Compute TGW's taxable income. (Do not round intermediate calculations. Amounts to be deducted should be indicated with a minus sign.) $ 3,920,000 TGW's net book income before tax Adjustments: Depreciation Indirect inventory costs Cost of goods sold Book goodwill impairment expense Tax amortization of goodwill TGW's taxable income

Answer 1

Answer:

Given data:

• TGW's net income before tax = $39,20,000
• Depreciation expense per book = $ 4,49,000
• MARCS depreciation = $ 3,78,400
• Indirect exp inventory for book purposes = $ 6,79,000
• Indirect exp inventory for tax purposes = $ 8,04,000
• cost of goods sold for book purposes =$ 25,58,000
• cost of goods sold for tax purposes = $ 26,40,000
• Book goodwill impairment expense = $ 7,51,000

Calculation of TGW's taxable income:

Description	Amount	Amount
TGW's net income before tax		$39,20,000
Depreciation :
Depreciation expense per book	$ 4,49,000
MARCS depreciation	$ 3,78,400
Total	=$ 4,49,000-$ 3,78,400 =$ 70,600	$ 70,600
Indirect inventory costs:
Indirect exp inventory for book	$ 6,79,000
Indirect exp inventory for tax	$ 8,04,000
Total	=$ 6,79,000 - $ 8,04,000 = ($1,25,000)	($1,25,000)
Cost of goods sold:
cost of goods sold for book	$ 25,58,000
cost of goods sold for tax	$ 26,40,000
Total	=$ 25,58,000 - $ 26,40,000 = ($ 82,000)	($ 82,000)
Book goodwill impairment expense		$ 7,51,000
Tax amortization of goodwill	= ($ 22,56,000/180)*12 months = ($ 1,50,400)	($1,50,400)
TGW's taxable income	=$39,20,000+$ 70,600-($1,25,000)-($ 82,000)+$ 7,51,000-($ 1,50,400) =$ 43,84,200	$43,84,200

Therefore , TGW's taxable income is $43,84,200