Question

the following information relates to franklin freightways for its first year of operations (data in millions of dollars): pretax accounting income: $ 195 pretax accounting income included: overweight fines (not deductible for tax purposes) 5 depreciation expense 70 depreciation in the tax return 110 the applicable tax rate is 25%. there are no other temporary or permanent differences. franklin's taxable income ($ in millions) is:

Answer 1

Taxable income for Franklin Freightways is calculated by adjusting the pretax accounting income for non-deductible expenses and differences in depreciation for accounting and tax purposes. After adjustments, the taxable income is $150 million.

Step-by-step explanation:

Given the data: pretax accounting income is $195 million, which includes a non-deductible expense for overweight fines of $5 million, and a depreciation expense of $70 million. For tax purposes, the depreciation is $110 million. The applicable tax rate is 25%, but this rate is not required for the calculation of taxable income, only for calculating the tax payable.

First, we subtract the non-deductible expense (overweight fines) from the pretax accounting income. Then, we adjust for the difference in depreciation between the accounting records and tax records.

Here is the calculation:

• Pretax Accounting Income: $195 million
• Less: Overweight fines (not deductible): $5 million
• Subtotal: $190 million
• Add: Depreciation expense (accounting): $70 million
• Less: Depreciation (tax): $110 million

Therefore, the taxable income would be: $190 million + $70 million - $110 million = $150 million.