Question

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1
Loong Corporation, a calendar year accrual besis corporation, reported $1 million of net income after tax on its financial statements
prepared in accordance with GAAP. The corporation's books and records reveal the following information
Luong's federal income tax expense per books was $200,000
- Luong's book income included $10,000 of dividends received from a domestic corporation in which Luong owns a 25 percent stock
interest and $4,000 of dividends from a domestic corporation in which Luong owns a 5 percent stock interest
- Luong recognized $10,000 of capital losses this year and no capital gains
- Luong recorded $8,000 of book expense for meals not provided by a restaurant and $10,000 of book expense for entertainment
- Luong's depreciation expense for book purposes totaled $400,000 MACRS depreciation was $475.000
Required:
& Compute Luong's federal taxable income and regular tax liability
& Prepare a Schedule M-1, page 6, Form 120, reconciling Luong's book and taxable income.
Required A
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Compute Loong's federal taxable income and regular tax liability
Note: Enter your answers in whole dollars not in millions.
Amount

Answer 1

To compute Luong Corporation's federal taxable income and regular tax liability, let's go through the reconciliation process and make the necessary adjustments:

Start with net income per books: $1,000,000

Add back book expenses that are not deductible for tax purposes:

Meal expenses not provided by a restaurant: $8,000

Entertainment costs: $10,000

Total adjustments: $18,000

Net income before book-to-tax adjustments: $1,000,000 + $18,000 = $1,018,000

Deduct tax-exempt income (dividends received):

Dividends received from a 25% stock interest: $10,000

Dividends received from a 5% stock interest: $4,000

Total adjustments: $14,000

Taxable income before book-to-tax adjustments: $1,018,000 - $14,000 = $1,004,000

Add non-deductible expenses for tax purposes:

Capital losses: $10,000

Total adjustments: $10,000

Taxable income after book-to-tax adjustments: $1,004,000 + $10,000 = $1,014,000

Determine depreciation difference:

Book depreciation: $400,000

MACRS depreciation: $475,000

Depreciation difference: $475,000 - $400,000 = $75,000

Taxable income after depreciation adjustment: $1,014,000 - $75,000 = $939,000

Calculate federal taxable income:

Federal taxable income: $939,000

Compute the regular tax liability using the applicable tax rates for the corporation's taxable income.

Please note that the specific tax rates and calculations may vary depending on the tax year and any changes in tax laws or regulations. It is recommended to consult with a tax professional or reference the appropriate tax forms and instructions for accurate calculations based on the current tax laws and regulations.

Answer 2

Cash basis refers to a major accounting method that recognizes revenues and expenses at the time cash is received or paid out. This contrasts accrual accounting, which recognizes income at the time the revenue is earned and records expenses when liabilities are incurred regardless of when cash is received or paid.

Step-by-step explanation:

When transactions are recorded on a cash basis, they affect a company's books upon exchange of consideration; therefore, cash basis accounting is less accurate than accrual accounting in the short term. The Tax Reform Act of 1986 prohibits the cash basis accounting method from being used for C corporations, tax shelters, certain types of trusts, and partnerships that have C Corporation partners.